How to Perform a Physical Inventory Count in Dynamics 365 Business Central
- Heather Watson
- Jul 16
- 5 min read
Learn how to complete a Physical Inventory Count in Microsoft Dynamics 365 Business Central.
A Physical Inventory Count compares the quantities Business Central expects to have on hand with what is actually counted. Any differences can then be reviewed and posted to update inventory records, helping maintain accurate inventory valuation and stock levels.
This training article walks you through creating a Physical Inventory Order, recording counted quantities, reviewing variances, and posting inventory adjustments to ensure your system accurately reflects what is physically available in your warehouse.
Why Perform a Physical Inventory Count?
Physical inventory counts are an important part of inventory management because they help:
Verify inventory accuracy
Identify shortages and overages
Detect potential data entry errors
Improve inventory planning and forecasting
Maintain accurate financial reporting
Regular inventory counts ensure the inventory recorded in Business Central matches the physical inventory in your warehouse.
Performing a Physical Inventory Count in Dynamics 365 Business Central
Create a Physical Inventory Order
The first step is to create a Physical Inventory Order, which defines the inventory and location that will be counted. To open Physical Inventory Orders, select the Search icon (magnifying glass) or press Alt + Q and type in Physical Inventory Orders. Select the page from the search results
A list page will open up. Select + New.
Complete the header information such as the description, location code, person responsible, along with the posting and recording dates.
As soon as you enter a description, the Physical Inventory No. is automatically assigned.
The Division Code will typically populate based on the selected location but can be adjusted if necessary. This order will serve as the foundation for the inventory count process.
Calculate Inventory Lines
After creating the order, you'll need to generate the inventory lines that will be counted. To do this, navigate to Prepare and select Calculate > Calculate Lines.
The Calculate Inventory page will open. Begin by choosing Calculate Qty. Expected by toggling it on. This instructs Business Central to calculate the quantity currently expected to be on hand.
For most inventory counts, it is recommended to leave both Items Not on Inventory and Include Items without Transactions unselected. These settings keep the count focused only on relevant inventory items.
Also ensure that the appropriate Location Code is entered before proceeding.
Additional filters can also be applied to make counts easier to manage. For example, to add a vendor number, select + Filter.
Search for Vendor No. in the drop-down list. This adds a field where you can select the desired vendor. This allows you to count inventory from a specific supplier rather than the entire warehouse.
When all settings are complete, select OK to generate the inventory lines.
Create a Physical Inventory Recording
Once your Physical Inventory Order has been created, you can generate a recording to capture the actual count results. To create a new recording, from your physical inventory order, select Home > Make New Recording. This creates an electronic count sheet for entering counted quantities.
When the Make New Physical Inventory Recording window appears, it is recommended to enable the following options. Toggle the Only Lines Not in Recordings on. This option prevents duplicate counting by creating recording lines only for inventory items not already included in another recording.
Toggle the Allow Recording Without Order on as well. This option allows items not currently listed on the inventory order to be added to the count if they are discovered during the physical count. No additional filters are required at this stage and select OK to create the recording.
Complete the Recording Header
To access your recording, select Related > Order > Select Recordings. Then select your recording from the list.
On the recording, enter the details such as a description, person responsible, count date and count time (optional). Confirm Allow Recording Without Order remains enabled. These details provide accountability and audit support for the inventory process.
Enter Physical Count Quantities
After the inventory has been physically counted,
Enter the actual counted quantities for each item
Add any items discovered during the count that were not originally on the order
Review all quantities for accuracy
Once all counts have been entered and verified, select Finish and confirm the action.
Selecting Finish locks the recording and prevents unintentional changes. At this stage, inventory has not yet been adjusted or posted.
Review Recorded Quantities
After completing the recording, the recording status changes from Open to Finished and The Qty. Recorded field on the Physical Inventory Order is populated. This confirms the count information has been successfully transferred to the inventory order.
Calculate Expected Quantities
The next step is to compare recorded counts with Business Central's expected quantities. From the Physical Inventory Order, select Actions > Functions > Calc. Qty. Expected
When prompted, select Only Not Calculated Lines. This option calculates expected quantities only for lines that have not already been processed.
Once completed, the Qty. Exp. Calculated field will be updated. Variances between expected and counted quantities can be reviewed.
Finish the Physical Inventory Order
Before completing the order:
Confirm all items have been counted
Verify the On Recording box is selected for each item
Ensure the Person Responsible has been entered in the order header
When everything is verified, select Finish.
Review any validation messages and select Yes to confirm.
After finishing, Business Central updates the Positive Quantity adjustments and the Negative Quantity adjustments. These values represent the differences between recorded inventory and expected inventory.
Once the order is finished, you can analyze any inventory discrepancies. Common reasons for variances include:
Inventory shortages
Inventory overages
Counting errors
Posting errors
Unrecorded inventory movements
Reviewing these variances before posting helps identify and resolve inventory issues.
Making Corrections
If changes are required after the order has been completed, follow these steps:
Reopen the Physical Inventory Order
Reopen the related Recording
Make the necessary adjustments
Finish the Recording again
Return to the Physical Inventory Order
Select Finish
This ensures all updates are included in the final inventory results.
Post the Physical Inventory Order
Once all counts have been reviewed and approved, the final step is to post the inventory order.
Posting the Physical Inventory Order:
Updates inventory balances
Creates inventory adjustment entries
Updates the Item Ledger
Records the physical inventory transaction permanently
This finalizes the inventory count and ensures Business Central accurately reflects the inventory physically on hand.
Performing regular Physical Inventory Counts in Business Central helps maintain inventory accuracy and ensures your inventory records align with actual warehouse stock.
By following a structured process, creating an inventory order, recording counts, reviewing variances, and posting adjustments, you can reduce inventory discrepancies and improve confidence in your inventory data.
Got Questions? Kwixand Solutions Can Help
Feel free to get in touch with the team at Kwixand Solutions for assistance if you still have questions. Don't forget to subscribe to our YouTube channel for more Business Central training videos, and stay connected with us on LinkedIn, Facebook, and Instagram, for the latest updates.
