Mastering Business Central Inventory Posting Setup Process Part 2

Part 2 of the Inventory Costing Series

If you read Part 1 of this series and thought, “Great, I kind of understand costing now,” hold onto that momentum—because now we’re diving into Business Central Inventory Posting Setup.

This is where MIcrosoft Dynamics 365 Business Central starts talking to your G/L. It’s also where setup mistakes can quietly wreck your financials until, one day, your accountant goes full Hulk because Inventory doesn’t reconcile.

Let’s break it down in human terms, with real-life examples and T-accounts.

In this post, I’ll walk you through:

• What posting groups do (in plain English)
• Which ones matter for inventory costing
• How the postings flow and accounts they touch
• And how to avoid the all-too-common “who broke the G/L?” situation

Wait, What Are Posting Groups?

Think of posting groups as the routing system for your transactions. They tell Business Central:

“This item went into inventory—put it in this balance sheet account.”

“This shipment left—move cost to that COGS account.”

“This production order posted output—apply costs here, post WIP there.”

No posting group = no posting.

Incorrect posting group = incorrect G/L.

It’s that simple. Still, Business Central Inventory Posting Groups are one of the most important configurations for good costing.

Key Business Central Posting Group Components for Inventory Costing

Inventory Posting Group: Categorizes inventory items (e.g., Raw, Finished Goods); Setup on the Item Card

Pro Tip: You should have an inventory posting group for each of the inventory accounts on your balance sheet for easy month end recociliation.

Inventory Posting Setup: Connects item group + location to G/L accounts; Setup in the inventory posting setup table

General Product Posting Group Routes cost & revenue accounts; defined on the Item Card

General Business Posting Group Tied to customers/vendors for revenue and purchases logic; setup on the Customer/Vendor Card

General Posting Setup Combines Business + Product group to hit revenue/COGS; configured in the general posting setup table

Walkthrough: Purchase → Sale of Inventory Item (with T-Accounts)

OK, fair warning. This gets a little confusing so hopefully it makes sense.

Let’s say you buy a finished good and sell it later. Here’s how the system flows through posting groups.

First, a couple of assumptions:

• Automatic cost posting and Expected Cost Posting to G/L are both turned on.
• Automatic Cost Adjustment is set to always
• Costing method is FIFO

NOTE: This is not a recommended setup for production systems but is helpful when testing through and understanding the various postings.

Inventory Purchase

• Item: FG1000
• Inventory Posting Group = FG
• Location Code = MAIN
• Direct Cost = $100

Posting at Receipt (Expected Cost)

Account Description	Posting Group Setup Location	Debit	Credit
Accrued Inventory (Asset account) commonly known as Received not Invoiced	Inventory Posting Setup: Inventory Account (Interim)	$100
Accrued Payable (Liability account)	General Posting Setup: Invt Accrual Acc (Interim)		$100

At this point, real time inventory is recorded, but you haven’t received the actual invoice yet. The inventory quantity has posted to the item ledger entries and is available for use in production or sale. Everything on the balance sheet is an accrual.

Posting at Invoice

Account Description	Posting Group Setup Location	Debit	Credit
Accrued Inventory (Asset account) commonly known as Received not Invoiced	Inventory Posting Setup: Inventory Account (Interim)		$100
Accrued Payable (Liability account)	General Posting Setup: Invt Accrual Acc (Interim)	$100
Purchases – Income statement COGS account	General Posting Setup: Purchases Account	$100
Direct Cost Applied – Income statement COGS account	General Posting Setup: Direct Cost Applied Account		$100
Final Inventory Account: Balance Sheet	Inventory Posting Setup: Inventory Account	$100
Accounts Payable	Vendor Posting Group: Accounts Payable Account		$100

Inventory costs are moved from the interim (or accrued) accounts to the true Inventory balance sheet account.

The part that often confuses folks is the Purchase and Direct Cost Applied Accounts. These accounts act as a clearing mechanism between inventory and COGS or WIP. It ensures proper flow of costs and makes reconciliation possible. If this account has a lingering balance, it’s a sign something hasn’t been invoiced, posted, or adjusted.

These can be set as the same account and they will offset unless there’s some issue. I prefer to set them as two different accounts that should net out so I can see the inventory postings more clearly.

Now You Sell the Item for $250

• General Product Posting Group = FG
• General Business Posting Group = DOMESTIC
• Cost = $100 (from Value Entry)
• Sale Price = $250

Posting at Shipment (Interim)

Account Description	Posting Group Setup Location	Debit	Credit
COGS Accrual account on Income Statement	General Posting Setup: COGS (Interim)	$100
Accrued Inventory (Asset account) commonly known as Shipped not Invoiced	Inventory Posting Setup: Inventory Account (Interim)		$100

Posting at Invoicing

Account Description	Posting Group Setup Location	Debit	Credit
COGS Accrual account on Income Statement	General Posting Setup: COGS (Interim)		$100
Accrued Inventory (Asset account) commonly known as Shipped not Invoiced	Inventory Posting Setup: Inventory Account (Interim)	$100
Final COGS Account – Income Statement	General Posting Setup: COGS	$100
Final Inventory Account	Inventory Posting Setup: Inventory Account		$100
Accounts Receivable – Balance Sheet	Customer Posting Group: Accounts Receivable	$250
Revenue – Income Statement	General Posting Setup: Sales Account		$250

At this point, your G/L reflects both the revenue and the expense tied to that transaction. This is the outcome of Inventory Posting Setup and General Posting Setup working together.

Manufacturing Example: WIP and Output

Let’s go deeper—because if you’re a manufacturer, this is where the Business Central inventory posting setup gets real. This is really just the basics. Maybe we’ll do a deeper post on all things manufacturing costing later on.

Scenario:

You consume $80 of raw materials and produce one finished good valued at $150.

Posting Consumption

Account Description	Posting Group Setup Location	Debit	Credit
Work in Progress Balance Sheet Account	Inventory Posting Setup: WIP Account	$80
Inventory Raw Materials Balance Sheet account	Inventory Posting Setup: Inventory Account		$80

This pulls the raw materials inventory out of it’s Inventory balance sheet account and puts it in WIP.

Output Posting (Finished Good)

Account Description	Posting Group Setup Location	Debit	Credit
Inventory Finished Goods Balance Sheet Account	Inventory Posting Setup: Inventory Account	$150
Work in Progress Balance Sheet Account	Inventory Posting Setup: WIP Account		$150

The finished good is now in stock. The difference ($70 in this example) could represent labor, overhead, or subcontract costs if configured. As I mentioned, there’s so much more to cover on manufacturing costing.

Watch Out For These Mistakes

• Business Central Posting Setup copied from Cronus with no logic. This data can be a bit wonky so really make sure you test through properly
• Missing inventory posting setups for new locations
• Posting groups that don’t match operational reality (e.g., subcontract inventory posted to finished goods)
• Manual G/L corrections instead of fixing posting logic. This is a huge no no. If your subledger doesn’t match your G/L, this is the first place to look.

Final Thoughts: Set It Up Right and Sleep at Night

Inventory Posting Groups are the unsung heroes of accurate costing. When set up properly, they:

• Keep your balance sheet clean
• Ensure COGS reflects reality
• Prevent endless reconciliation nightmares

But when ignored or half-baked? They break the G/L and take weeks to unwind.

Up Next in the Series:

Inventory Costing Methods in Business Central: FIFO, Avearge, Standard and more

Get ready for FIFO vs. Average vs. Standard—real talk, real examples, and my honest advice on when each one works (and when it doesn’t).

Did you miss Part 1? Read it here.

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