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6 Steps to prepare for a wall-to-wall inventory count – Dynamics 365

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So your company is about to do a wall to wall inventory count.  What should you do to prepare for this big event? What should be done in Microsoft Dynamics 365?  Let’s explore these tasks.

Step 1: Post any open inventory journals

Validate all of your journals that affect inventory are posted.  If not, this can cause inaccurate counts to be submitted.  These journals include, but are not limited to:

  1. Movement Journal
  2. Transfer Journal
  3. Inventory Adjustment
  4. BOM Journal
  5. Counting Journal
  6. Picking List (Production)
  7. Picking List (Sales)
  8. Transfer Orders

TIP: The easiest way to find all of these journals is to go to each journal form and look for any “Open” journals / orders.  Either post them or delete them, depending on the need.

Step 2: Identify registered receipts

You’ll want to identify registered receipts that have not been posted because that inventory is available for use, but the physical and financial transaction has not occurred against the receipt.

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Notice there is no physical or financial date so there is no general ledger impact at this point.

Finding these transactions and posting the receipt will give you a physical voucher (cost) and easier traceability of the items.  Costs will show up in the un-invoiced account.

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Step 3: Review physically reserved inventory transactions

Should you clear reserved inventory items? Maybe. When items are physically reserved, such as against a sales order, you cannot make adjustments to them.  It is best to clean up any open reservations prior to physical inventory.  Besides reviewing and posting / clearing any open inventory journals, you will need to find any active picking lists that cause physical reservations.  The easiest way to do this is to go to the Dynamics 365 Sales and Marketing module.

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Activated Picking Lists have not been picked yet but do hold reservations.

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Either complete the pick or delete the Picking List to release the reservation.  If you are reserving at the time of sales order creation, you will need to manually release each reservation.

Step 4: Look around your space

Besides the “virtual spaces” in Dynamics 365 mentioned above that need to be handled before your inventory count takes place, you may have physical areas in your business where materials linger.  Policies need to be put in place as to what to do with these areas.

Areas which need to be considered include:

  • Incoming Dock – If items are on your dock but not received, should they be?  What will you do with items that come in while the physical inventory is taking place?  Is there a dedicated area for these items and marked as “Do Not Count”?
  • Quarantine Area – Are items in this area subject to count?  If so, are any locked by quarantine orders?
  • Floor Stock – Is any stock on the floor considered in the count?
  • WIP
  • Returns Area
  • Obsolete Materials – Are these materials considered in the inventory?

Step 5: Balance your inventory GL accounts

Prior to performing the physical inventory, but after you have run your inventory closing and adjustment for the period, be sure to balance your inventory GL accounts (inventory and accruals) to the sub ledger. The value of the inventory after closing is based on the cost method that you are using.  Standard cost will not change with the inventory close and adjustment process.  It will “lock” the values for that period.

If the transaction is not able to be settled, the value will be based on:

  • Receipts will be at actual cost; for example PO purchase price
  • Issue cost is calculated at a running average cost.  The formula for this is (Physical amount + Financial amount) / (Physical quantity + Financial quantity)

This will allow you to get an accurate “Beginning” balance to your inventory.  This is the value that you will balance to your GL by using the inventory value report.  Remember to include accrual accounts in the balancing process.  You do not have to include non-inventory accounts.

Be sure to also validate the accounts that your physical inventory gain and loss are set to.  When the inventory counting journal is posted, Microsoft Dynamics 365 will create the gain/loss transactions for each item counted.  You can view these profiles by navigating to Inventory and warehouse management> Setup> Posting> Posting.  On the Inventory tab you will see the options Loss and Profit, the profiles you set on these options will determine where the financial adjustments to inventory will be posted.

Step 6: Freeze transactional areas

Microsoft Dynamics 365 allows you to set a parameter that will block any posting to items during a count.  However, the parameter “Lock items during count” should be marked ONLY when using the tag counting journal.

If you are using a Cycle count journal to post your transactions, be sure your parameter for locking items during cycle count is set to NO (unchecked in the Inventory parameters). By marking this parameter and using a Cycle count journal, it will not allow you to enter the same item with the same inventory dimensions.

The easiest way to ensure that no inventory transactions are posted is to change the status in the Inventory Module period in your ledger calendar settings.  By changing the module access so that either no one can post or a selected group can post to the Inventory Module, you control when and by whom the posting is done.
That’s it!
By accounting for all the “in progress” inventory BEFORE you start the physical inventory count, you should have accurate numbers each time you do a periodic / annual inventory count.

If you need any help, please let us know!

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Want to transform your business with Microsoft Dynamics 365? Learn more!

Written by: Genie Engels