# Setting Physical Inventory vs. Making Inventory Adjustments

Setting physical inventory is used when first starting with Sellercloud. This will let Sellercloud know how much inventory for an SKU is in a particular warehouse.

**Inventory Adjustments** are used when **tracking average costs** in Sellercloud for a particular SKU.

This **takes into account lost/damaged inventory** or **new inventory** that was found during a cycle count and applies that to the average cost calculation in Sellercloud.