Conducting Physical Inventory

The physical inventory is conducted on the basis of stock management units. A stock management unit is the nondivisible part of a stock of materials for which a separate book inventory exists.

A stock management unit is defined by the following criteria:

• Material
• Plant and storage location
• Stock type
• Valuation type and batch
• Special stock

For a material, each stock management unit of a material is counted separately, and the inventory differences are posted per stock management unit. For example, you must separately record the quantity of material at each storage location of a plant that is in each of these stock types: unrestricted-use stock, stock in quality inspection, and blocked stock.Physical Inventory

There are at least two reasons why an enterprise must make an inventory of its stocks at regular intervals. Many countries require by law that each company takes a physical inventory of its material stocks. This physical inventory checks the material stocks for the current assets shown in the financial statement of the company.

It is also important for internal reasons to establish the correct stock quantities available. It is the goal of MRP, for example, to ensure the availability of materials at all times while at the same time minimizing stockholdings. Incorrect stock data leads to faulty availability figures.

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Physical Inventory Document

Create physical inventory documents for each plant and storage location. If you wish to inventory special stocks, you create physical inventory documents per plant, storage location, special stock, and vendor or customer or project (depending on the special stock). You can specify the storage bin or the material group as further grouping values. The items of a physical inventory document are then all assigned to a material group or a storage bin in addition to the mentioned groupings.

When you create a physical inventory document, you can specify a Physical Inventory Number in the document header. Do not confuse this physical inventory number with the number of the physical inventory document. The physical inventory number facilitates the selection of the physical inventory documents to be processed for a material during entry of the count results, posting of differences, and evaluations. You have free choice in assigning the physical inventory number. For example, you may want to use the ID of the count group, the processor, the department, or the month and/or date of the physical inventory.

If the physical inventory transaction references a document that lies outside the system or, conversely, if a document that lies outside the system references the physical inventory transaction, enter the document number in the Physical Inventory Reference field.

The Description text field is also available in the header of the physical inventory document. You can enter data in this field if you create or change physical inventory documents manually.

To monitor the inventory process, the system records in each inventory document which inventory steps have already been performed. This information can be found in the item data and in the document header.

The inventory history in the item detail informs you which steps have been carried out for the item. In the document header, the fields Count status, Adjustment status, and Delete status specify whether some or all of the items have been counted, posted, or deleted. You can also display a statistic for the physical inventory document; the statistic list how many document items are open, counted, posted, recounted, or deleted.

Changes to a Physical Inventory Document

If you have not yet entered an inventory count result, you can make the following changes to an inventory document:

• In the document header
  • Change the planned count date.
  • Set or unset the posting block.
  • Freeze or unfreeze the book inventory.
  • Specify or change the physical inventory number, reference, and name.
• In an item record
  • Change the stock type.
  • Change the count unit of measure.
  • Set the deletion indicator.
• Enter new items.
• Delete the document.

If you have already entered inventory count results for some of the items in an inventory document (but not for all items), you can only make the following changes:

• Set or remove the posting block.
• Freeze the book inventory or remove the freeze.
• Set the deletion indicator for individual items or delete the document completely.
• Enter or change the physical inventory count results.

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Physical Inventory Count

For the inventory count, the physical inventory document is printed in order to perform the physically inventory count and to record its results. After completion of the physical inventory, the inventory list with the written count results is returned to the person in charge, who enters the count results in the system, in the corresponding inventory document.

When the first count result is entered in an inventory document, the count date must be specified. This date is relevant for two things:

• Determine the book inventory:If the count date lies in the current period, the book inventory is the quantity at the relevant stock level at the current time, that is, when the count results are entered.If the count date lies in the previous period, the book inventory is the quantity at the time of the last period-end closing.
• Determine the posting period for the difference posting:The count date is used to determine the period in which the differences have to be posted, for example, if the count date is December 30, 2020, the posting period is December 2020.If the differences are not posted until January 2021, posting back to the previous period must be permitted.

When you enter the count results, on the initial screen of the transaction, you can also specify a tolerance for inventory difference as a percentage variance. If the difference between the count result and the book inventory exceeds the value derived from the percentage variance, the system issues a warning message.

Note that you cannot enter 0 as a count result. If zero stock is counted for a stock management unit, you must specify this using the Zero Count checkbox in the physical inventory document. In a physical inventory document, you can select the Zero Count checkbox for a single item or simultaneously for all items for which no count result has been entered.

If the count result for an item is posted in the physical inventory document, the count status of the item changes to Counted and the difference between the count and book inventory values is calculated.

You can simultaneously analyze inventory differences for multiple physical inventory documents using the list of differences. The list of inventory differences contains the following information for each item:

• Quantity counted
• Book inventory
• Difference quantity
• Difference amount

For a recount, a new physical inventory document is created with reference to the original physical inventory document. For the recount document, the physical inventory process starts from the beginning.

The items to be recounted in the original physical inventory document receive the status “counted, recounted”. Differences can no longer be posted for these items.

Difference Posting
The difference posting must be made for all items of a physical inventory document, even if there is no inventory difference. The physical inventory for a stock management unit is only complete once the difference posting is made.

You can define tolerances for the posting of inventory differences for a user group in Customizing for Inventory Management and Physical Inventory under Physical Inventory→Define Tolerances for Physical Inventory Differences(OMJ2).

In a user group, you can define the following tolerances for posting inventory differences:

• Maximum postable difference amount for each inventory document
• Maximum postable difference amount for each inventory document item

If an inventory difference exceeds the tolerance defined for the user group, and you are assigned to this physical inventory tolerance group, you cannot post any inventory differences for this document. If the total value of the document is within the inventory tolerance but certain items exceed the tolerance for the specific item, you cannot post the differences for those items but you can process the differences for other items in the physical inventory document.

The system automatically sets the posting period of the accounting document when you enter the first count for the physical inventory document. The inventory difference must, therefore, either be posted in the same period or, if backposting to the previous period is allowed, in the preceding period.

Own Stock

When the inventory difference is posted, the stock figure in the material master record is changed; the total stock is automatically corrected by the inventory difference. From the accounting point of view, this corresponds to a goods receipt or goods issue. This means that when the inventory difference is cleared, the stock account is debited or credited:

• If the count result is less than the book inventory, the stock account is credited with the value of the inventory difference multiplied by the price. The offsetting entry is made to the “Expense from Physical Inventory” account.
• If the count result is greater than the book inventory, the stock account is debited with the value of the inventory difference multiplied by the price. The offsetting entry is made to the “Revenue from Physical Inventory” account.

Because the posting amount is calculated based on the current valuation price in the material master record, posting the inventory difference does not change the valuation price.

Vendor Consignment

When inventory differences are posted, the vendor consignment stock is automatically adjusted by the inventory difference. Because this stock is managed on a nonvaluated basis, there is initially no posting to the accounting side. Nevertheless, an accounting document is created because a difference is interpreted as follows.

Goods Movements Blocking

You can block materials (more precisely, stock management units) from posting goods movements during physical inventory. To do this, you set the Posting Block indicator at header level in the physical inventory document.

As a result, the system sets the posting block in the material master record for all stock management units from this physical inventory document. This means that in the material master record, in the Storage Location Stock view, the value X (Due to phys. inv., material is blocked for movements) is set in the Physical Inventory Block field.

In the case of the stock of your company, goods movements are blocked at the levels of the plant and the storage location. In the case of a special stock, blocking takes place at the level of the plant, storage location, special stock, and additional data (customer, vendor, order, or project).

When the count result for the relevant stock management is entered, the block is lifted. In the material master record, the Physical Inventory Blocking indicator is set to A (physical inventory of the material not yet completed). The indicator is unset when the inventory difference is posted.

Book Inventory Freezing

If it is not possible to block the goods movement for organizational reasons, you can freeze the book inventory in the physical inventory document at the time of the count. To do so, set the Freeze Book Inventory indicator in the physical inventory document. This prevents the goods movements from changing the book inventory figure that is relevant to the inventory-taking process.

Book Inventory Adjustment in a Physical Inventory Document

The initial situation for the scenario is as follows:

Physical inventory is active for a stock management unit of a material. The book inventory for the stock management unit was already transferred in the inventory document, either because

• The Freeze Book Inventory indicator is set in the physical inventory document.
• Or the count result is entered in the physical inventory document.

With the Adjust Book Inventory function, you can have a goods movement for the inventory unit adjust the book inventory in the inventory document by the corresponding quantity.

If the Adjust Book Inventory function is active, the system checks whether a goods movement would have had an effect on the book inventory in the physical inventory document if it had been posted at the correct time. If this is the case, the book inventory in the inventory document is adjusted by the quantity added or deducted by the goods movement. The inventory difference of the item changes accordingly.

During the check, the system compares the posting date of the goods movement with the count date (planned or actual) in the physical inventory document. If the goods movement posting date is before the count date, the system then adjusts the book inventory in the physical inventory document. If the posting date of the goods movement and the count date are the same, the indicator that you selected to activate the function determines whether an adjustment takes place.

To activate the function in Customizing, choose Materials Management→Inventory Management and Physical Inventory→Physical Inventory→Settings for Physical Inventoryand choose a value for the Adjust Book Inventory field.

TheAdjust Book Inventory indicator has the following values:

• Not active (“_”)
• Active (“1”)If the dates of the goods movement and the count date of the physical inventory are the same, the physical inventory was before the goods movement.
• Active (“2”)If the dates of the goods movement and the count date of the physical inventory are the same, the goods movement was before the physical inventory.

Example:

1. On date 12/27:The stock of the material is 31 PC; the physical inventory document is created.
2. On date 12/28:The count result of 35 PC is entered; 31 PC is used as the book inventory in the physical inventory document, and an inventory difference of +4 PC is returned.
3. On date 12/29:A goods receipt of 5 PC is entered with theposting date of 12/26; the book inventory in the physical inventory document is adjusted to 36 PC (31 + 5); the inventory difference is -1 PC.

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