Inventory closing and adjustment

10 minutes

As part of the process to settle issue transactions with receipt transactions, you can also select to have the system update the general ledger to reflect the adjustments that you make.

The inventory close process settles issue transactions to receipt transactions based on the inventory valuation method that you select in the item's item model group. As part of the settlement process, you can specify that the system should update the general ledger so that it reflects the adjustments that you make. However, until you run inventory close or recalculation, the system posts issue transactions at the calculated running average cost price.

After inventory close, you can no longer post in periods that are before the inventory closing date that you set, unless you reverse a completed inventory close process. For example, if you run inventory close for the period that ends on January 31, you can't post transactions that have a date of January 31 or earlier.

The system assigns items in inventory to one of two inventory types: item or service. Inventory close performs the same functions for both types. However, for service items, inventory close still settles issues to receipts.

How often the inventory close process runs can vary by company. However, transaction volume should help determine how often you decide to run inventory close. In general, most companies run inventory close as part of their month-end close and reconciliation procedures.

Go to Inventory management > Periodic tasks > Closing and adjustment to perform the inventory close process.

Inventory recalculation and the general ledger

If adjustments to inventory and the general ledger are required during a month or other inventory period, you can run inventory recalculation instead of inventory close. Inventory recalculation makes adjustments but doesn't make settlements to inventory transactions.

During inventory recalculation, the system adjusts available inventory, adjusts inventory transactions, and runs inventory recalculations and inventory closes. These tasks affect any ledger account that's linked to the original inventory transaction.

For example, when you create a purchase order from a sales order, the system updates the general ledger accounts that you use for the original sales order. Even if the ledger accounts for the item group that's assigned to the item change after you post the sales order, and if an inventory recalculation creates an adjustment amount, the system posts the adjustment amount to the original ledger accounts. The system doesn't post the adjusted amount to the new ledger accounts that are assigned to the item.

After the update completes, you can review the posted ledger voucher by following these steps:

On the Closing and adjustment page, on the Overview tab, select the update to review.
Select Details and then select Voucher.

Effects of the inventory close process on the general ledger

Several tasks that you can perform on the Closing and adjustment page cause an update to the general ledger.

For example, the system updates the general ledger when you make adjustments to available inventory, make inventory transaction adjustments, run inventory recalculation, and run inventory close.

The system links the ledger accounts that it updates because of these tasks to the original inventory transaction.

For example, if you settle a sales order to a purchase order, the system adjusts the general ledger accounts that you used for the original sales order. This behavior occurs even if the ledger accounts for the item group that's assigned to the item change after you post the sales order.

After inventory close creates a settlement amount, the system still posts the settlement amount to the original ledger accounts, not to the new ledger accounts that are assigned to the item. The system might also update the general ledger if you reverse an inventory close.

Consider the following information about inventory close:

Inventory close isn't required if you use the standard cost valuation method.
Before you run the closing procedure, you can view a list of items that you can't settle during the update.
We recommend that you run inventory close during off-peak hours to distribute computing resources more evenly.

Inventory close log

After you complete the inventory close process, a message in the message center might inform you that a unit cost price might be incorrect because the system couldn't fully settle a transaction.

Before this message shows, the system reports the item number and the affected transaction. The message informs you that the system didn't update the cost amount that you used for this transaction because of the inventory close. This message appears when the system can't settle a transaction of the issue type.

During the inventory close process, the system checks each financial dimension to determine whether more issues than receipts exist up to the specified closing date. This type of imbalance can occur when you don't fully financially post an inventory transaction from a purchase order, whether it's because you haven't received the vendor invoice or if you haven't financially posted the bill of materials (BOM) components that are included in a production on a higher level. (The sub production isn't cost-calculated.) In this case, the subsequent close won't adjust all issues to the correct cost price because not enough receipt information is available.

For each run of the closing procedure, the system indicates whether a log that contains the warnings is stored and viewable.

If you receive many warnings in the message, we recommend that you perform the following actions:

Update receipts financially.
Advance the closing date.
Reevaluate the business procedures.

In some circumstances, you might not be able to do anything about the warnings. For example, if you use marking, and the marked purchase order has a financial date that's after the closing date, you can't change the closing date.

Reverse a completed inventory close

Occasionally, you might have to reverse a completed inventory close to return settlements to the state that they had before you made adjustments. When you reverse a completed inventory close, the system reopens inventory to allow you to post in the period that the inventory close covers. The system might also make related changes in the general ledger. After you finish making adjustments, you can run inventory close again for the period that you're working with.

You can only reopen the last inventory period that was closed. To reverse an earlier inventory close, you must reverse each subsequent inventory close, one at a time, starting with the most recent close.

Adjust available inventory cost values

You can use the Adjustment of on-hand inventory page to adjust the cost value of available inventory quantities after you run an inventory close process.

For example, you have the following transactions in February:

February 1 - An inventory financial receipt for a quantity of two at a cost of USD 10.00
February 5 - An inventory financial receipt for a quantity of one at a cost of USD 13.00
February 19 - An inventory financial issue for a quantity of one at a running average cost of USD 11.00

In this scenario, this item is set up with the first in, first out (FIFO) inventory model, and inventory close is performed as of February 28. The system settles the financial issue transaction of USD 11.00 against the financial receipt that's dated February 1, and it makes an adjustment of USD 1.00. Then, the following inventory receipts contain open inventory quantities:

February 1 - A quantity of one at a cost of USD 10.00
February 5 - A quantity of one at a cost of USD 13.00

To set the cost of these two items to USD 15.00, use the on-hand adjustment option to adjust the open available quantities as of the last inventory close period.

Note

The posting date of the on-hand adjustment transaction is the date of the last inventory close. You can't modify this date.