It is critical that the NCAS maintain accurate on-hand balances for inventory. An accurate system-maintained balance reflects the actual physical balance of an item in the warehouse. Correct system balances are important for supplying items in a timely manner and for inventory accounting purposes.

Inaccurate system balances result from data-entry mistakes, miscounting item receipts and issues, and the failure to record inventory transactions in the system. Inaccurate on-hand balances produce serious implications for inventory. For example, if the system-maintained on-hand quantity of an item is too high, the system could delay replenishment of the item. A replenishment delay could result in an out-of-stock situation for that item. Similarly, if the system-maintained item balance is lower than the physical balance, the system could initiate replenishment early, causing overstocking of the item.

The process of reconciling inventory ensures that the system-maintained quantity of an item matches the physical quantity of the item in the warehouse. The warehouse manager uses cycle counts to reconcile inventory in the NCAS. Cycle counts can be requested for individual items or for previously established cycle count access paths. Recall from the Establishing Access Paths section that cycle count access paths can be established to guide the counting of inventory in warehouse areas. After items on a cycle count are counted, the count quantity, or physical balance of the items, is compared with the system-maintained item balance. A discrepancy between these balances is often discovered during cycle counting. The NCAS reconciles the discrepancy by adjusting the system-maintained item balance to match the physical item balance. The system also automatically posts the discrepancy to the general ledger.

A discrepancy between the system-maintained and physical quantities of an item may be discovered in between cycle counts. For example, the warehouse manager could discover a discrepancy if the system allocates 10 notebooks to an order when only six are available to be picked. In this case, the system on-hand balance does not correspond to the physical on-hand balance. When this occurs, the warehouse manager should not wait for a cycle count to make adjustments to the system-maintained balance. Using the Add Inventory Adjustments (AIAU) or Deduct Inventory Adjustments (DIAU) screens, the warehouse manager should immediately make adjustments to increase or decrease the system on-hand balance. After the appropriate adjustments are completed, the system-maintained balance should match the physical balance. Adjustments to the system quantity also result in adjusting entries to the general ledger.