How to match Inventory Value with Inventory GL Account (Chart of Accounts)

It has been found in my past experience that Companies face difficulty in matching the Inventory Value with Inventory GL Account. Most of the time it has been found that the team who is responsible for running the ERP is not knowledgeable enough to understand the process required to match the Inventory value with Inventory GL Account. We also need to understand that the Inventory reconciliation process requires that a person should have basic knowledge of Inventory accounting and Item costing. I have also seen that even some Navision Implementing consultants lack knowledge of Inventory reconciliation with Inventory GL accounts. 

The Inventory setup in Navision is simple and straight forward. All we need to understand the purpose of various fields defined in various Inventory related setup tables. If the setup is not defined properly, the value which is being reported in Inventory Valuation report and what is being shown in Inventory GL will not match. When values do not match the user start complaining regarding wrong ERP product selection or wrong implementation done by ERP partner. In order to match the Inventory GL , they enter General Journal entries  so that they can close the Balance sheet during Financial Year closure.

Inventory smoothly works in Navision if we define the Inventory setup properly and regularly run the processes related to Inventory like "Adjust Cost - Item Entries", "Post Inventory Cost to GL".

Below are the steps if  follow regularly will match Inventory with GL Account in most cases. 

1. Run Adjust Cost - Item Entries

2. Post Inventory Cost to G/L account

3. Check Source code in GL Entries

4. Abnormal posting dates
5. Run the report "Inventory Valuation" and check with Inventory GL (Chart of Accounts)
6. Block the Inventory G/L Accounts from direct posting.

1. Run "Adjust Cost - Item Entries" : This is THE heart of all Inventory Process in Navision. This process must run in order to reconcile Inventory with GL account. This process updates any outbound cost  based on the fluctuation of  inbound cost. For example, User has done positive adjustment of Quantity 1 with Rs. 10 and negative adjustment of same quantity with Rs. 5.  The process "Adjust Cost - Item Entries"  takes care  difference of Rs. 5

2. Post Inventory Cost to GL Account : The process updates the inventory cost fluctuation in GL account. It also updates the Inventory cost if setup is defined in ERP system to manually run batch job for Inventory cost updation.  

3. Check Source Code in GL Entries : Any entry posted in the Inventory GL account should be as INVTPCOST. If any entry is not marked as INVTPCOST, shows that the entry is posted manually in the Inventory GL account or  setups need to be checked. If entry is not marked as INVTPCOST,  there will always remain difference in Inventory Valuation and GL Accounts.

4. Abnormal Posting Dates: It has been found that user does the Purchase Invoice before GRN (Purchase Receipt) date. This happens mostly during month end transaction. When GRN happens on first week of next month and Purchase Invoice happens last date of previous month. These type of activities creates problem in reconciling the Inventory with Inventory GL Account.

5. Run the report "Inventory Valuation" and check with Inventory GL (Chart of Accounts) : This task is very helpful in  reconciling the inventory with GL accounts. It will also help in understanding the various entries which are not finished  i.e. which are reflecting in  "Expected Cost". It will also help in understanding those entries which are need to be finished.

6. Block the Inventory G/L Accounts from direct posting. : All the Inventory G/L accounts should be blocked from direct posting. It helps in preventing the users from entering the vouchers in Inventory accounts.

Conclusion

After you match your inventory value to G/L, ensure that no further manual postings are done to your inventory accounts. In addition, implement some control on the dates on when you post your receipt/'shipment and invoices. Not to mention you should frequently update the Allow Posting From field on the General Ledger Setup.