How to: Count, Adjust, and Reclassify Inventory

At least once every fiscal year you must take a physical inventory, that is, count all the items on inventory, to see if the quantity registered in the database is the same as the actual physical quantity in the warehouses. When the actual physical quantity is known, it must be posted to the general ledger as a part of period-end valuation of inventory.

Although you count all items in inventory at least once a year, you may have decided to count some items more often, perhaps because they are more valuable, or because they are very fast movers and a large part of your business. For this purpose, you can assign special counting periods to those items. For more information, see the "To perform cycle counting" section.

If you need to adjust recorded inventory quantities, in connection with counting or for other purposes, you can use an item journal to change the inventory ledger entries directly without posting business transactions. Alternatively, you can adjust for a single item on the item card.

If you need to change attributes on item ledger entries as well as the quantities, you can use the item reclassification journal. Typical attributes to reclassify include serial/lot numbers, expiration dates, and dimensions.

To perform a physical inventory

You must take a physical inventory, that is, count the actual items on hand, to check if the quantity registered is the same as the physical quantity in stock at the end of a fiscal year, if not more often. If there are differences, you must post them to the item accounts before you do the inventory valuation.

Apart from the physical counting task, the complete process involves the following three tasks:

  • Calculate the expected inventory.
  • Print the report to be used when counting.
  • Enter and post the actual counted inventory.

To calculate the expected inventory

  1. Choose the Search for Page or Report icon, enter Phys. Inventory Journals, and then choose the related link.
  2. Choose the Calculate Inventory action.
  3. In the Calculate Inventory window, specify the conditions to use to create the journal lines, such as whether to include items that have zero recorded inventory.
  4. Set filters if you only want to calculate inventory for certain items, bins, locations, or dimensions.
  5. Choose the OK button.
Note

The item entries are processed according to the information that you specified, and lines are created in the physical inventory journal. Notice that the Qty. (Phys. Inventory) field is automatically filled in with the same quantity as the Qty. (Calculated) field. With this feature, it is not necessary for you to enter the counted inventory on hand for items that are the same as the calculated quantity. However, if the quantity counted differs from what is entered in the Qty. (Calculated) field, you must overwrite it with the quantity actually counted.

To print the report used when counting

  1. In the Phys. Inventory Journal window containing the calculated expected inventory, Choose the Print action.
  2. In the Phys. Inventory List window, specify if the report should show the calculated quantity and if the report should list inventory items by serial/lot numbers.
  3. Set filters if you only want to print the report for certain items, bins, locations, or dimensions.
  4. Choose the Print button.

Employees can now proceed to count inventory and record any discrepancies on the printed report.

To enter and post the actual counted inventory

  1. On each line in the Phys. Inventory Journal window where the actual inventory on hand, as determined by the physical count, differs from the calculated quantity, enter the actual inventory on hand in the Qty. (Phys. Inventory) field.

    The related fields are updated accordingly.

    Note

    If the physical count reveals differences that are caused by items posted with incorrect location codes, do not enter the differences in the physical inventory journal. Instead, use the reclassification journal or a transfer order to redirect the items to the correct locations. For more information, see Item Reclass. Journal or How to: Create Transfer Orders.

  2. To adjust the calculated quantities to the actual counted quantities, choose the Post action.

    Both item ledger entries and physical inventory ledger entries are created. Open the item card to view the resulting physical inventory ledger entries.

  3. Choose the Search for Page or Report icon, enter Items, and then choose the related link.

  4. To verify the inventory counting, open the item card in question, and then, choose the Phys. Inventory ledger Entries action.

To perform cycle counting

Although you count all items in inventory at least once a year, you may have decided to count some items more often, perhaps because they are more valuable, or because they are very fast movers and a large part of your business. For this purpose, you can assign special counting periods to those items.

Note

If your location is set up for directed put-away and pick, then you first use the Whse. Phys. Invt. Journal window, and then you use the Calculate Whse. Adjustment function in the Item Journal window.

To set up counting periods

A physical inventory is typically taken at some recurring interval, for example monthly, quarterly, or annually. You can set up whatever inventory counting periods necessary.

You set up the inventory counting periods that you want to use and then assign one to each item. When you perform a physical inventory and use the Calculate Counting Period in the physical inventory journal, lines for the items are created automatically.

  1. Choose the Search for Page or Report icon, enter Phys. Invt. Counting Periods, and then choose the related link.
  2. Fill in the fields as necessary. Choose a field to read a short description of the field or link to more information.

To assign a counting period to an item

  1. Choose the Search for Page or Report icon, enter Items, and then choose the related link.
  2. Select the item to which you want to assign a counting period.
  3. In the Phys Invt Counting Period Code field, select the appropriate counting period.
  4. Choose the Yes button to change the code and calculate the first counting period for the item. The next time you choose to calculate a counting period in the physical inventory journal, the item appears as a line in the Phys. Invt. Item Selection window. You can then begin to count the item on a periodic basis.

To initiate a count based on counting periods

  1. Choose the Search for Page or Report icon, enter Phys. Inventory Journal, and then choose the related link.
  2. Choose the Calculate Counting Period action.

    The Phys. Invt. Item Selection window opens showing the items that have counting periods assigned and need to be counted according to their counting periods.

  3. Perform the physical inventory. For more information, see the "To perform a physical inventory" section.

To adjust the inventory of one item

After you have made a physical count of an item in your inventory area, you can use the Adjust Inventory function to record the actual inventory quantity.

  1. Choose the Search for Page or Report icon, enter Items, and then choose the related link.
  2. Select the item for which you want to adjust inventory, and then choose the Adjust Inventory action.
  3. In the New Inventory field, enter the inventory quantity that you want to record for the item.
  4. Choose the OK button.

The item’s inventory is now adjusted. The new quantity is shown in the Current Inventory field in the Adjust Inventory window and in the Inventory field in the Item Card window.

You can also use the Adjust Inventory function as a simple way to place purchased items on inventory if you do not use purchase invoices or orders to record your purchases. For more information, How to: Record Purchases.

Note

After you have adjusted inventory, you must update it with the current, calculated value. For more information, see How to: Revalue Inventory.

To adjust the inventory quantity of one or more items

In the Item Journal window, you can post item transaction directly to adjust inventory in connection with purchases, sales, and positive or negative adjustments without using documents.

If you often use the item journal to post the same or similar journal lines, for example, in connection with material consumption, you can use the Standard Item Journal window to make this recurring work easier. For more information, see the "Standard Journals" section in Working with General Journals.

  1. Choose the Search for Page or Report icon, enter Item Journals, and then choose the related link.
  2. Fill in the fields as necessary. Choose a field to read a short description of the field or link to more information.
  3. Choose the Post action to make the inventory adjustments.
Note

After you have adjusted inventory, you must update it with the current, calculated value. For more information, see How to: Revalue Inventory.

To reclassify an item's lot number

  1. Choose the Search for Page or Report icon, enter Item Reclass. Journals, and then choose the related link.
  2. In the Item Reclass. Journal window, fill in the fields as necessary.
  3. To In the Lot No. field, enter the items current lot number.
  4. In the New Lot No. field, enter the item's new lot number.
  5. Choose the Post action.

See Also

Inventory
Sales
Purchasing
Working with Financials