Category: Business CentralRead time: 6 MinsPublished on: 27 Jan 2026

How to Use the Physical Inventory Journal in Dynamics 365 Business Central

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1. What is the Physical Inventory Journal in Business Central?

The Physical Inventory Journal in Dynamics 365 Business Central is used to reconcile system inventory with actual warehouse stock by posting positive or negative adjustments based on physical counts.

Does your Business Central system stay in sync with warehouse stock records? Get it Synchronized using Physical inventory journal.

With three main steps, you can update your stock levels, eliminate discrepancies, and ensure your Business Central reflects the real-time status of your warehouse.

  • Calculate inventory
  • Calculate inventory
  • Enter and post the actual counted inventory

Note: The process works for basic warehouse configuration (For advanced warehouse configuration use Warehouse physical inventory Journal)

If your organization struggles with recurring inventory discrepancies or complex warehouse setups, working with experienced Business Central consulting services can help streamline inventory processes and avoid costly errors

Use the Physical Inventory Journal when:

  • Performing annual or cycle inventory counts
  • Investigating stock discrepancies
  • Migrating data or cleaning legacy inventory
  • Auditors require stock validation

2. Why the Physical Inventory Journal Matters in Business Central

Accurate inventory data is critical for both warehouse operations and financial reporting. The Physical Inventory Journal in Dynamics 365 Business Central ensures that the inventory quantities recorded in the system match the actual stock available in the warehouse.

By reconciling calculated inventory with physically counted quantities, organizations can:

  1. Maintain Accurate Inventory Valuation

    Any differences identified during physical inventory posting result in positive or negative adjustments that directly impact inventory value and the general ledger.

  2. Improve Audit Readiness and Compliance

    Regular physical inventory counts provide a verifiable trail of stock accuracy, which is essential for internal controls and external audits.

  3. Prevent Stock Discrepancies and Fulfillment Issues

    Correct inventory levels reduce the risk of overselling, stockouts, or incorrect purchasing decisions.

  4. Ensure Reliable Financial Statements

    Since inventory is a key balance sheet item, accurate counts help ensure that financial reports reflect the true state of the business.

Using the Physical Inventory Journal as part of a structured inventory control process helps organizations maintain operational efficiency, financial accuracy, and system reliability.

3. Physical Inventory Journal Process Overview

  1. Calculate Inventory

    Using Global search or Tell-me icon, search for Physical inventory journal and select the Batch name.

    A screenshot of the Physical Inventory Journals page in Microsoft Dynamics 365 Business Central. The interface shows the DEFAULT batch name and an active Prepare menu tab.
    • Go to Prepare > Calculate Inventory action
    • Specify the options like Posting Date, Document No.
    • Enable the below if required
      • Items not on inventory - Include the items for calculation whose current "Inventory on Hand" is 0.
      • Include Item without Transactions - Include the items created but doesn't have any transactions.
    • Specify the filters

    Business Central calculates expected inventory quantities based on current ledger entries and displays them for comparison with physical counts.

    A screenshot of the Physical Inventory Journals page showing a list of populated inventory lines. This view represents the system's expected stock levels before manual counts are entered and posted.
  2. Share the Report to Warehouse Employees
    • Go to Home > Print
    • In the report request page, specify the filters
      • Show Qty (Calculated) - will enable/ disable the column named Qty. (Calculated) in the report.
      • Show Item Tracking numbers - If the item is tracked by serial or Lot and would like to share the lot/serial numbers then enable/ disable accordingly.
    • Print the report and share it to the warehouse employees to record the inventory count
    A screenshot of a formal overview of stock levels in Business Central. It organizes a wide range of inventory by their specific Location Codes.
  3. Enter and Post the Actual Counted Inventory

    It might several days to weeks to complete the entire inventory count by the warehouse team.

    Once the actual inventory count is received from them, it needs be entered manually in business central

    • Enter the actual quantity in the Qty.(Physical Inventory) column.
    • If the values differ, then Positive/ negative adjustment entry will be created.

      Note: Inventory valuation will be impacted.

      A screenshot of the Physical Inventory Journals page in Microsoft Dynamics 365 Business Central. Red boxes highlight the system's automatic adjustment calculations based on manual entry.
    • Go to Home > Post to post the changes.

    Recommendations

    • As a best practice, transactions for the item should not be posted until the physical inventory has been fully completed.
    • If any items are received before completing the physical inventory process, then Clear the current physical inventory count and Redo the process

4. Common Mistakes to Avoid when Using Physical Inventory Journal

Even though the Physical Inventory Journal in Dynamics 365 Business Central is straightforward, certain common mistakes can lead to inaccurate stock levels, valuation issues, and audit challenges. Avoiding these pitfalls ensures a smooth and reliable inventory reconciliation process.

  1. Posting Transactions During the Physical Inventory Count

    One of the most frequent mistakes is continuing to post sales, purchase, or transfer transactions while the physical inventory count is in progress.

    Why this is a Problem:

    Inventory movements during the count can cause discrepancies between calculated quantities and actual physical stock, adjusting unreliable.

    Best Practice:

    Freeze transactions for the items being counted until the physical inventory process is fully completed and posted.

  2. Not Clearing Previous Physical Inventory Data

    If a physical inventory count is interrupted or delayed, users may accidentally continue with outdated calculated quantities.

    Why this is a Problem:

    Old, calculated values may no longer reflect current inventory levels, resulting in incorrect adjustments.

    Best Practice:

    If the count is delayed or inventory changes occur, clear the existing physical inventory journal and recalculate inventory before proceeding.

  3. Ignoring the Impact on Inventory Valuation

    Physical inventory posting creates positive or negative adjustment entries that directly affect inventory value and the general ledger.

    Why this is a Problem:

    Posting adjustments without reviewing valuation impact can distort financial statements and lead to reconciliation issues with finance teams.

    Best Practice:

    Always review adjustment quantities and expected valuation impact before posting, especially during period-end or year-end closing.

  4. Using the Wrong Journal for Warehouse Configuration

    The Physical Inventory Journal is designed for basic warehouse configurations. Using it in environments with advanced warehouse setup can cause inconsistencies.

    Why this is a Problem:

    Advanced warehouses require bin-level control and directed put-away and pick logic, which are not handled by the basic journal.

    Best Practice:

    For advanced warehouse configurations, always use the Warehouse Physical Inventory Journal instead.

  5. Incomplete or Inaccurate Data from Warehouse Teams

    Inventory counts recorded manually by warehouse staff may contain missing quantities, incorrect units of measure, or unclear item identification.

    Why this is a Problem:

    Incorrect or incomplete count data leads to wrong adjustment postings and repeat inventory discrepancies.

    Best Practice:

    Ensure warehouse teams use standardized count sheets, correct units of measure, and clearly record item numbers, lot numbers, or serial numbers where applicable.

  6. Posting Without Review or Approval

    Rushing to post the physical inventory journal without review is another common risk.

    Why this is a Problem:

    Once posted, reversing inventory adjustments can be time-consuming and may require additional corrective entries.

    Best Practice:

    Implement a review or approval step before posting, especially for high-value or high-volume items.

Preventing these common errors helps organizations maintain accurate inventory records, reliable financial reporting, and stronger internal controls. A disciplined approach to physical inventory counting ensures Business Central reflects the true operational and financial position of the business.

If you're facing recurring inventory discrepancies, valuation concerns, or planning to scale your warehouse operations, contact our experts to discuss your inventory challenges and get expert guidance on Dynamics 365 Business Central.