Inventory Foundations

Items in Business Central

Inventory Setup

Open Inventory Setup (Tell Me > “Inventory Setup”):

Field	Purpose
Automatic Cost Posting	Auto-post cost adjustments to GL when inventory changes
Expected Cost Posting to G/L	Post expected costs from receipts before final invoicing
Automatic Cost Adjustment	When to auto-run cost adjustment (Always, Never, Day, Week, Month)
Average Cost Calc. Type	Item or Item and Location and Variant
Average Cost Period	Day, Week, Month, or Accounting Period
Item Nos.	Number series for new items
Location Mandatory	Require a location on every inventory transaction

Core item settings

Item categories

Create a hierarchy for classification:

All Items
├── Electronics
│   ├── Computers
│   └── Peripherals
├── Furniture
│   ├── Office
│   └── Warehouse
└── Raw Materials
    ├── Steel
    └── Plastic

Each category can inherit default attributes — assign “Colour” and “Size” to Furniture, and every furniture item automatically gets those attribute fields.

Item attributes

Descriptive key-value tags on items:

Attribute	Type	Values
Colour	Option	Red, Blue, Green, Black
Material	Option	Steel, Aluminium, Plastic
Weight (kg)	Decimal	Any number
Warranty	Option	1 Year, 2 Year, 5 Year

Attributes help searching and filtering but don’t affect pricing or inventory tracking.

Units of measure

Items can have multiple units of measure:

UoM Type	Used For	Example
Base UoM	Internal tracking	Each (1 bolt)
Purchase UoM	Buying from vendors	Box (100 bolts per box)
Sales UoM	Selling to customers	Pack (10 bolts per pack)

BC converts automatically. Buy 5 boxes (500 bolts), sell 20 packs (200 bolts), inventory shows 300 bolts.

Item variants

Closely related versions of the same item tracked separately in inventory:

Item	Variant	Description
CHAIR-OFFICE	BLK	Office Chair - Black
CHAIR-OFFICE	GRY	Office Chair - Grey
CHAIR-OFFICE	RED	Office Chair - Red

💡 Exam tip: Attributes vs variants

• Attributes = descriptive only. For searching/filtering. Don’t affect inventory tracking.
• Variants = tracked separately. Each variant has its own stock quantity per location. Can have different prices.

“Track inventory separately per colour” → Variants. “Filter by material type in reports” → Attributes.

Locations

Physical places where inventory is stored:

Location Code	Name	Type
MAIN	Main Warehouse	Primary storage
SHOWROOM	Customer Showroom	Display items
TRANSIT	In Transit	Goods being transferred

When Location Mandatory is enabled, every inventory transaction must specify a location.

Stock Keeping Units (SKUs)

An SKU combines Item + Location + Variant with its own replenishment settings:

Item	Location	Variant	Replenishment	Reorder Point	Lead Time
BOLT-M8	MAIN	—	Purchase	500	5D
BOLT-M8	WAREHOUSE-B	—	Transfer	200	2D
CHAIR-OFFICE	MAIN	BLK	Purchase	10	14D

Question

What is an item variant?

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Answer

A closely related version of an item (e.g., colour, size). Variants are tracked separately in inventory with their own quantities per location. They share the base item card's posting groups and categories.

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Question

What's the difference between base UoM, purchase UoM, and sales UoM?

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Answer

Base UoM = internal tracking (Each). Purchase UoM = buying unit (Box of 100). Sales UoM = selling unit (Pack of 10). BC converts automatically between them.

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Question

What is a Stock Keeping Unit (SKU)?

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Answer

A combination of Item + Location + Variant with its own replenishment, reorder point, and lead time settings. Allows different inventory policies per location and variant.

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Knowledge check

Knowledge Check

Raj needs to track inventory of office chairs in black, grey, and red separately at each warehouse. He also wants to filter chairs by material type in reports. How should he set this up?

AUse item categories for colours and attributes for material typeBUse variants for colours (BLK, GRY, RED) and attributes for material typeCUse attributes for both colours and material typeDCreate separate item cards for each colour

Check Answer

Knowledge Check

Summit Distribution wants every inventory transaction to specify a warehouse location. What should be enabled?

ACreate mandatory dimension values for a LOCATION dimensionBEnable Location Mandatory in Inventory SetupCSet up security filters on the Item Journal to require locationDAdd location as a required field in the number series

Check Answer

🎬 Video coming soon

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Next up: Items and locations are set up. Now let’s understand how Business Central tracks costs — costing methods and the item ledger entry chain.