Inventory close is a critical process in Dynamics 365 Supply Chain Management that ensures your inventory and financial records are accurate and aligned. By reconciling inventory transactions and adjusting costs, inventory close provides a true reflection of inventory value at the end of a financial period. This process is essential for accurate cost accounting, financial reporting, and compliance.
The inventory close process performs several key functions:
- It settles issue transactions against receipt transactions, ensuring that inventory outflows are matched with inflows.
- It adjusts cost amounts based on actual purchase and production costs.
- It finalizes inventory values for the period, locking in costs for closed transactions.
- It recalculates running average costs for items using average costing methods.
These actions ensure that your inventory valuation reflects the most accurate and up-to-date cost information.
Inventory close is typically performed at the end of each financial period, such as monthly or quarterly. Before running the process, it’s important to ensure that all relevant inventory transactions have been posted and that no pending updates remain. This includes purchase receipts, production orders, and sales shipments. Running inventory close too early can result in incomplete or inaccurate cost settlements.
- **Settlements**: The process of matching issue transactions (e.g., sales, consumption) with corresponding receipt transactions (e.g., purchases, production).
- **Running Average Cost Recalculation**: For items using average costing, inventory close recalculates the average cost based on actual transactions.
- **Marking**: A manual or automatic method to link specific issue and receipt transactions for precise cost tracking.
- **Financial vs. Physical Updates**: Inventory transactions can be posted physically (when goods are received or shipped) or financially (when invoices are posted). Inventory close finalizes financial updates.
- **Impact on Inventory Valuation**: The process ensures that inventory values reflect actual costs, which is crucial for financial accuracy and audit readiness.
### Step 1: Review open inventory transactions
Ensure all inventory transactions are reviewed and any discrepancies are addressed.
### Step 2: Ensure all required postings are completed
Confirm that all purchase, production, and sales postings are finalized.
### Step 3: Run inventory close
Initiate the inventory close process from the Cost management module.
### Step 4: Review settlements and adjustments
Analyze the results to see how issues were settled and what cost adjustments were applied.
### Step 5: Validate updated inventory values
Check that inventory values are accurate and reflect the intended financial outcomes.
- **Cost Adjustments**: Inventory close may adjust costs based on actual purchase or production prices.
- **Variance Corrections**: Differences between estimated and actual costs are corrected.
- **Retroactive Cost Changes**: Adjustments may apply to past transactions if costs were updated after the fact.
- **Impact on Financial Statements**: Accurate inventory valuation affects cost of goods sold, gross margin, and overall financial reporting.
Inventory close is a foundational process for maintaining financial integrity in Dynamics 365 Supply Chain Management. By settling transactions, adjusting costs, and finalizing inventory values, it ensures that your books reflect the true cost of inventory. Regularly performing inventory close helps organizations stay compliant, audit-ready, and financially accurate.