Inventory Valuation – Month close Standard Operating Procedure (SOP)

Accurate inventory valuation is crucial for ensuring the financial integrity of any business using Microsoft Dynamics 365 Finance & Operations (D365 F&O). Companies with substantial inventory transactions must follow a structured approach to avoid discrepancies and ensure that profit and loss calculations are correctly reported. This Standard Operating Procedure (SOP) outlines the necessary steps to efficiently close inventory transactions, reconcile accounts, and maintain a reliable financial record.

In Dynamics 365 Finance & Operations, companies having substantial inventory transactions should follow a certain set of rules so that the inventory valuation runs correctly and the Profit and loss for the company is worked out correctly.

1. Before month close, close all the Unadjusted Inventory Transactions.
2. On The Side of “Issue” : The Below Given Transactions Must be Dealt Accordingly
3. Issue Status : Deducted : all the Sales Order Having under this status shows Sales Order that are not invoiced these must be Invoiced
4. Issue Status : Reserved Physical :

All the “Sales Orders” Having under this status shows Inventory Reserved this should be Un-reserved Before Closing

All the “Transfer Orders” under this status should be should be Un-reserved Before Closing

All the “journals” Under This Status Must Be Settled or Reversed.

1. Issue Status : Picked :

All the sales orders under this status show sales orders that are not invoiced but for whose GRN/ Delivery Has been Made these must be Invoiced.

• On The Side of “Receipt” : The Below Given Transactions Must be Dealt Accordingly
• Receipt Status : Reserved Physical :

All the “Transfer Orders” under this status should be should be Un-reserved Before Closing

All the “journals” Under This Status Must Be Settled or Reversed.

2. Post/delete unposted inventory journals

3. Close if there’s any registered/Picked journals

 2. Closing the Inventory : during off working hours – this is a mandatory condition.

1. Run – Inventory settlements cleanup.
2. Run – Inventory dimensions cleanup.
3. Run – On-hand entries cleanup.
4. Run – Inventory on-hand report data clean up.
5. Run – Clean up purchase update history.
6. Run – Purchase order history cleanup.
7. Run – Delete requests for quotations
8. Export All the On Hand Inventory.
9. Export Inventory Ageing Report.
10. Export Trail Balance
11. Run Recalculation.
12. Export All the On Hand Inventory Again.
13. Export Inventory Ageing Report Again.
14. Export Trail Balance Again.
15. Match The GL On Hand with Inventory GL Main Account balance.
16. Check Inventory Ageing.
17. In case of cost correction, manually update cost for items through Inventory management=> Periodic tasks => Closing and adjustment=>Transactions=>Select=> Input Item details =>Click OK=>Adjustments=>Fixed Price=> Input correct unit cost=>Post. Run item wise recalculation as on month end date.
18. Check Inventory Ageing.
19. Run the Inventory Closing.

To conclude, following a structured month-end close process ensures accurate financial reporting, prevents transaction mismatches, and keeps inventory valuation aligned with company objectives. By maintaining disciplined inventory management and performing routine cleanups, organizations can significantly enhance operational efficiency and ensure compliance with financial regulations. This SOP provides a clear roadmap for month-end inventory reconciliation, ensuring a smooth and error-free closing.

We hope you found this blog useful, and if you would like to discuss anything, you can reach out to us at transform@cloudfonts.com