This Question comes up from time to time because it almost seems that two items are interchangeable. However, there are some very key differences between a SKU record and an Inventory record. Understanding those differences leads to a deeper understanding of the entire inventory process.
A SKU (Stock Keeping Unit) record identifies and describes the physical properties and business logic applied to an item. A SKU is required in all other Inventory and Purchasing transactions. SKUs can be created to define physical items to be stored as warehouse inventory. Non-Inventoried goods and services are also defined as SKUs. The creation of a SKU record defines an item’s unique Id, description, physical properties, and business logic.
The Inventory record defines the item’s warehouse, storage bins, lot/serial numbers, quantity, and cost information. For a SKU to be setup in Inventory it must be flagged as an Inventoried item. Miscellaneous SKUs are never setup in Inventory.
Once a SKU has been setup in Inventory it can be issued, returned, transferred, reserved, physical inventoried, and re-ordered. From this point, any transaction that affects Inventory on-hand quantity or value will generate a Movement History record. When the Inventory record is added the increase in inventory will be documented as a Beginning Balance type Movement History record.
Since Inventory records are Location based, there can be multiple Inventory records for a single SKU record. Why? Because inventories of that SKU are stored at separate inventory locations, with each locations quantity on hand, average cost, etc being tracked by it's own inventory record.