FIFO - Inventory Recalculation - Adjustment on Transfer order

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Posted on by Dixita

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Hi there,

I have a question regarding the behavior of inventory recalculation (FIFO) in the following setup.

When I run the inventory recalculation, I notice that the adjustment is posted only for the Transfer Order Receipt and not for the Transfer Order Shipment. I’ve attached screenshots of my current setup for your reference.

Is this the expected system behavior in Microsoft Dynamics 365? Specifically, is it by design that adjustments are only posted against the 'Transfer order receipt' posting type?

If so, could you please clarify which configuration or setting controls this behavior?

Thank you in advance for your help!

Here is my item model group setup

Storage Dimension Group

Tracking dimension group

InventTrans

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Dynamics 365 Finance

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Syed Haris Shah 1,572 Super User 2026 Season 1 on at

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Hi Dixita,

Yes, this behavior is by design in D365 F&SCM. According to Microsoft's documentation https://learn.microsoft.com/en-us/dynamics365/supply-chain/cost-management/fifo-physical-value-marking:

This means that inventory recalculation relies on financially posted dates to determine how receipts are matched to issues (for example, a Transfer Receipt matched to a Transfer Shipment). The process doesn’t touch the shipment side because adjustments are only made when receipts are financially recognized.

Therefore, the behavior you're seeing. Where adjustments are applied only to the Transfer Order Receipt and not to the Shipment, is expected.

If you find this answer helpful, please consider verifying the answer. 👍

Regards,

Syed Haris Shah

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Dixita 296 on at

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Thank you, Syed, for your response.

I don't understand why the In-Transit warehouse is posting adjustments. This is causing the In-Transit warehouse value to show after recalculation, even though the inventory is zero.

Would this behavior be any different when using Standard Costing instead of FIFO?

Regards

Dixita

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Syed Haris Shah 1,572 Super User 2026 Season 1 on at

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Hi Dixita,

In FIFO, cost adjustment appears on the in-transit warehouse line because sold transactions use the in-transit inventory issue account while purchased transactions use the inventory receipt account.

When FIFO recalculation runs, the system adjusts both accounts with corresponding debit and credit entries to ensure the inventory value and financials are balanced.

For items under standard costing, recalculation is not required. The system automatically identifies any difference between standard cost and actual cost and posts it to the Standard Cost Variance account, keeping inventory and financials accurate without manual adjustment.

If you find this answer helpful, please consider verifying the answer. 👍

Regards,

Syed Haris Shah

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CA Neeraj Kumar 5,099 Super User 2026 Season 1 on at

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Hi Dixita,

This is standard behavior for inventory Recalculation for transfer order Inventory transactions, system post the adjustment only on transfer order receipt. [Explained well by @Syed]

It also causes a mismatch in inventory vs GL if we are looking for Site level Trial balance due to no accounting entries get posted for this Adjustment even if sites are different.

Regards,

Neeraj Kumar

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