PHYSICAL INVENTORY

Physical inventory is process of verifying the inventory stock quantity in our storage location, and
later we compare the inventory stock in storage location with book inventory mentioned in SAP
system.

 Physical inventory is a regular practice in Organization

Why to do Physical inventory?

 Internal requirement
To check the availability of stock for production purpose as a organization we should know
how much stock is present to fulfill the production requirement
 External requirement
For any legal reason to show available stock to government or any other regulatory
authority
 Financial report purpose

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Types of Physical inventory

1. Periodic inventory

All stocks in the company are physically counted based on certain period (Ex: Every month or every
3 months). Every material is counted, and the entire storage location is blocked for all types of
materials movement and inventory postings during the counting.

2. Continuous inventory

Stocks are counted throughout the fiscal year. All materials must be counted at least once a year.

EX: If organization has 5 storage location all 5 storage locations counted one by one throughout
physical year

3. Cyclic counting

Materials are physically counted at regular intervals throughout the fiscal year. Materials can be
logically divided into various categories to separate high-value materials from other material and
thus impose a more frequent inventory count. After this logical division, each material can be
assigned a relevant category that the system then refers to during the physical inventory
management process

4. Inventory sampling

In this method, materials are selected on a random basis on the balance sheet key date for a
physical count. If variances exist between the physical count and the book inventory balances (in
the SAP system), the presumption is that the book inventory balances for other materials are also
correct

Procedure for Physical Inventory Process

1. Create Physical inventory document

2. Print physical inventory document

3. Enter Physical inventory count

4. Post Difference

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1. Create Physical inventory document T code: MI01

We have to enter plant and storage location

Physical inventory document 491393 created

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Let’s verify the stock of the material in SAP system

T code: MMBE

Material 000000000000000259

2. Print physical inventory document T code: MI21

We have to enter Physical inventory document number

After entering Physical inventory document number, Execute and will get the Print of PI Document
shown below

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3. Enter Physical inventory count T code: MI04

Once we physically count the material in storage location we have to enter the count of material,
for our material our counted quantity is 45

Save the data

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4. Post Difference T code: MI07

Difference in phys. inv. doc. 491393 posted with Material doc. 491394

After posting the difference we can able to see the difference is inventory stock as 45

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Display the material document 491394 in MIGO

We are able to see the movement type 702

Select on FI documents to see the Accounting entries

Accounting entries are

BSX Inventory account (Credit -)

GBB GR/IR clearing account (Debit +) generated to balance the BSX

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Important Movement Types in Physical inventory

701 Add stock to unrestricted

702 Remove stock form unrestricted

703 Add stock to quality

704 Remove stock from quality

707 Add stock to blocked

708 Remove stock from blocked

Scenarios in Physical inventory

1. Posting block

2. Freeze book inventory

1. Posting block

If we select posting block for a material until complete Physical inventory for that material we are
not able to post any Goods receipt or Goods issue. So it will block the material under that plant and
storage location

Why to block the posting?

We should not miss the count

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Physical inventory document 491415 created

Now let’s create a Po for that material In ME21N

Standard PO created under the number 4500024618

Now post the GR for material under MIGO

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Above Error we can see when doing GR.

2. Freeze book inventory

In this scenario the stock will get freezed when we select the freeze stock option during creation of
PI document. But system will allow for posting of that material but it will always consider the
freezed book inventory quantity only.

Physical inventory document 491415

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Stock overview of material

Now let’s create a Po for that material In ME21N

Standard PO created under the number 4500024618

Now post the GR for material under MIGO

Material document 5000000241

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System allowed us to post GR, Check the material stock In MMBE

The up dated stock is 100 after GR

Now go to MI04 to enter the physical count 50

Post difference in MI07

Differences in phys. inv. doc. 491415 posted with material doc. 491416

Physical count is 50

Freezed book inventory 45

Difference in Quantity 5

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