Physical and Financial Updates in Dynamics 365 Supply Chain Management

Introduction

Physical and financial updates are core concepts in Dynamics 365 Supply Chain Management (D365 SCM). They determine how inventory transactions are recorded, valued, and posted in the system. Understanding these updates is essential for accurate inventory management, costing, and financial reporting.

What Are Physical and Financial Updates

Physical updates reflect changes in inventory quantities, while financial updates reflect changes in inventory value. Both updates work together to ensure accurate tracking of stock and costs.

How Physical Updates Work

Physical updates occur when inventory quantities change but the financial value is not yet finalized. Examples include:
- Product receipt
- Packing slip updates
- Production order picking
- Transfer order shipment

These updates affect on-hand inventory but do not post to the general ledger.

How Financial Updates Work

Financial updates occur when inventory transactions are financially posted. Examples include:
- Vendor invoice
- Sales invoice
- Production order costing
- Transfer order receipt (financial)

These updates finalize the cost and post to the general ledger.

Impact on Inventory Valuation

Physical and financial updates influence:
- Inventory value
- Cost of goods sold (COGS)
- WIP valuation
- Costing methods (FIFO, LIFO, Weighted Average)

Accurate updates ensure reliable financial statements and operational reporting.

Step-by-Step Breakdown

1. Perform a physical update (e.g., product receipt)
2. Inventory quantity increases
3. Perform a financial update (e.g., vendor invoice)
4. Inventory value is finalized
5. General ledger is updated

Key Considerations

- Physical updates affect quantity only
- Financial updates affect both quantity and value
- Delayed financial updates can cause temporary valuation differences
- Costing methods determine how values are calculated

Conclusion

Understanding the distinction between physical and financial updates is critical for maintaining accurate inventory records, ensuring proper cost accounting, and producing reliable financial reports. Proper configuration and timely execution of these updates help streamline operations and improve decision-making.

Flowchart

```mermaid
graph TD
    A[Start] --> B[Physical Update]
    B --> C[Quantity Updated]
    C --> D[Financial Update]
    D --> E[Value Finalized]
    E --> F[General Ledger Updated]
    F --> G[End]
```