Inventory setup contains the core configuration settings that control how inventory is managed and valued in Business Central. While every organization has unique requirements, several settings are commonly recommended during implementation.

It's important to discuss your business processes with your Microsoft Partner to ensure your inventory setup aligns with your operational and accounting needs.

Recommended inventory setup settings

When reviewing inventory setup, consider the following recommendations:

• Enable Automatic Cost Posting
• Enable Expected Cost Posting to G/L
• Set Automatic Cost Adjustment to Always
• Review your default costing method
• Consider whether Prevent Negative Inventory is appropriate for your business

Expected Cost Posting helps ensure received-not-invoiced transactions are handled correctly and should ideally be enabled before data migration. Automatic Cost Adjustment ensures inventory value entries are updated automatically, helping maintain accurate inventory valuation and general ledger balances.

Choosing a costing method

The most common costing methods include:

• FIFO (first in, first out)
• Average cost

The best option depends on your industry, inventory practices, and accounting requirements. Be sure to discuss this decision with your accounting team and implementation partner.

Prevent negative inventory

Enabling Prevent Negative Inventory stops users from posting transactions that would result in negative stock quantities. Benefits include:

• Cleaner inventory records
• Earlier identification of inventory issues
• Improved inventory accuracy

However, some businesses may find this restriction impacts day-to-day operations. Review your processes carefully before enabling the setting.

Location management

Locations are not required in Business Central. If your organization operates from multiple warehouses or inventory locations, location tracking may be beneficial. Otherwise, location fields can remain optional to simplify transaction entry.

Inventory periods

Although inventory periods may seem useful, they generally provide limited value in Business Central. Once an inventory period is closed, users cannot post transactions back into that period. This often creates additional administrative work without delivering significant operational benefits. As a result, many organizations choose not to use Inventory Periods.

Units of measure setup

Business Central includes standard units of measure by default. To improve usability:

• Remove columns that are not relevant to your organization.
• Use personalization to simplify the page layout.
• Consider adding a decimal precision field if your processes require it.
• Review integration requirements if using Dynamics CRM or other connected systems.

Personalization can significantly improve the user experience and reduce confusion.

Inventory posting groups

Inventory posting groups determine which general ledger accounts inventory transactions use. When configuring inventory posting groups:

• Verify Inventory Accounts are correctly assigned.
• Verify Inventory Interim Accounts are configured.
• Hide manufacturing-related fields if manufacturing is not being used.
• Review account assignments before processing live transactions.

Proper setup ensures inventory transactions flow correctly through the general ledger.

General product posting groups

General product posting groups control financial distributions for transactions such as:

• Sales
• Cost of Goods Sold
• Purchases
• Purchase Discounts
• Sales Discounts
• Inventory Adjustments

Different product categories often require different revenue and cost accounts, making posting group setup a critical part of financial reporting.

Received not invoiced and shipped not invoiced accounts

A common best practice is to establish dedicated accounts for:

• Received Not Invoiced (accrued purchases)
• Shipped Not Invoiced (accrued shipments)

These accounts help identify inventory that has been received or shipped but not yet invoiced, improving visibility and reconciliation efforts.

Inventory adjustments

Inventory adjustments should ideally be posted through a dedicated inventory reserve or adjustment account. Benefits include:

• Better visibility into shrinkage and obsolescence
• Reduced distortion of Cost of Goods Sold
• Improved financial analysis

Using a reserve account helps avoid large fluctuations in expense accounts when significant inventory adjustments occur.

Testing before making changes

Before changing inventory-related accounts in a production environment:

1. Make configuration changes in a sandbox or test company.
2. Process sample transactions.
3. Review the resulting ledger entries.
4. Verify balances post as expected.
5. Move changes into production only after successful testing.

Thorough testing helps prevent posting issues and reporting inaccuracies.

Key takeaways

• Enable Expected Cost Posting and Automatic Cost Adjustments for accurate inventory valuation.
• Choose a costing method that aligns with your business and accounting needs.
• Carefully evaluate whether Prevent Negative Inventory fits your operations.
• Configure Inventory Posting Groups and General Product Posting Groups correctly to ensure accurate financial reporting.
• Use dedicated accrual accounts for received-not-invoiced and shipped-not-invoiced transactions.
• Test all posting configuration changes in a sandbox environment before deploying to production.