23 April 2024

Inventory Reconciliation, why do we do it anyway?

Many Microsoft Dynamics users experience problems in gaining insight into inventory valuation, on the one hand, and the connection between inventory sub-administration and the general ledger, on the other. But why is this actually important? Often the accountant is a trigger to look at this again, but why does the accountant actually ask this?

Introduction to Inventory Valuation and Sub-Ledger

Inventory valuation is logically reasoned: at a certain moment you have a certain (physical) inventory and that inventory represents a value for your company. You register this inventory administratively in your ERP system and value it according to a chosen valuation method such as FIFO or standard cost. Of course, you want the value and the quantities of the inventory to approximate reality as closely as possible, so that you can manage your company accurately and timely.

What is a Sub-Ledger?

A sub-ledger is literally a ledger within a ledger. In the general ledger, often only the final bookings that lead to, for example, the debtors, creditors, and inventory balances are recorded. Because all transactions end up on those accounts, it quickly becomes difficult to gain insights into, for example, the position per debtor, creditor, or item. Therefore, a sub-ledger is also maintained in the system where such data are visible. To determine the reliability of the information provision, it is necessary that the data in the sub-ledger exactly match the data in the general ledger.

The Role of Inventory Reconciliation

Now that the background is clear, what does that mean for a system like Microsoft Dynamics 365 Business Central? In this system, all inventory bookings are driven by means of locations and inventory posting groups. Business Central itself offers a very limited possibility to check the connection (through a report), but as soon as one of these settings changes, it is almost impossible to easily check the connection. In addition, Business Central offers few flexible analysis options with which you can quickly gain more insight.

Make the Process Easier and More Transparent

With our Inventory Reconciliation module, you can easily gain insight into both the inventory valuation and the inventory reconciliation. Through an analysis mechanism, all general ledger entries and all entries of the inventory sub-ledger are analyzed and enriched with each other’s data. This allows us to show you the connection based on the historical bookings at any desired moment (with the settings that applied at that time) as well as the connection as it should be based on the current settings. Through simple clickable screens, you can quickly zoom in on potential problems and explain differences unambiguously and easily. The module is easy to use, quick to implement, and possibly also available with a rental construction for analysis purposes. Are you experiencing problems with inventory reconciliation or valuation? Do not hesitate and contact us!