Physical Inventory

What is Physical Inventory?

Physical Inventory is the procedure used to maintain an accurate count of material This involves physically counting the quantity of stock at storage location

Which stocks can be inventoried?

- Company’s own stock

- Special stock (consignment stock at customer, external consignment stock from vendor or returnable packaging material)


1. Above stocks to be taken separately in different physical inventory documents.

2. Physical inventory can be carried out for the following stock types

a. Unrestricted stocks in wear house

b. Quality inspection stock

c. Blocked stock

d. If batch status management is active, stock type 1 covers both unrestricteduse stock and restricted-use stock

3. Inventory of all stock types mentioned could be taken in a single transaction

4. For the material to be inventoried, one item is created in the physical inventory document for every stock type.

5. Physical inventory takes place at storage location level.

6. A separate physical inventory document is created for every storage location

[If no storage location segment exists for a material, this means that no goods movement has ever taken place for the material in the storage location. The material therefore has never had any stock at the storage location and does not exist at stock

management level. It is therefore not possible to carryout a physical inventory for the material in this storage location

This is not to be confused with a material for which a goods movement has taken place and for which the stock balance is currently zero. A Physical inventory must be carried out in this case. It is also possible to carry out a physical inventory since storage location data is not deleted when the stock balance is zero]

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Physical inventory procedure:

• Periodic Inventory

• Continuous inventory

• Cycle counting

• Inventory sampling

Periodic Inventory:

- In periodic Inventory all stocks of the company are physically counted on the balance sheet key date.

- Every material must be counted

- During counting, the warehouse must be blocked for material movements.

Continuous Inventory:

- With the continuous Inventory procedure, stocks are counted continuous during the entire fiscal year.

- In this case, it is important to ensure that every material is physically counted at least once during the year.

Cycle Counting:

- Cycle Counting is a method of physical inventory where the inventory is counted at regular intervals with in the fiscal year.

- These intervals (or cycles) depend on the cycle counting indicator set for the moving items for examples.

Inventory Sampling:

- In inventory Sampling, randomly selected stock of the company are physically counted on the balance sheet key date.

- If the variance between the result of the count and the book inventory balance are small enough, it is presumed that the book inventory balances for the other stock are correct.

Physical Inventory process

Independent of the Physical inventory procedure, the physical inventory process can be

divided into three phases:

- Physical Inventory Preparation

1. This includes creating a physical inventory document

2. Blocking the material for posting and printing.

3. Distributing the physical inventory document

- Physical Inventory count

1. The stocks in the warehouse are counted and the count results are entered in the count list.

2. These are then transferred from the count list to the system in the step “Enter Physical inventory count”

- Physical Inventory check

1. Using the list of inventory differences, you can check variances in thestocks.

2. You should check whether the transferred count result is correct (change count) or whether you want to initiate a recount.

3. If the difference is accepted, it is posted and stock is corrected.


- A Physical inventory document is corrected to record the results of a physical Inventory.

- Once actual counts are entered in to the physical inventory document , the values are posted online, resulting in creation of SAP material and accounting documents

- Tolerance group can be limited to a maximum difference per physical inventory document and maximum difference per line item with in a document.