The On Hand balance is intended to reflect the quantity of inventory that is physically in the facility. On-Hand balances are maintained for all items with an 'Item Type' of "Sales Inventory" whether they are Lot Tracked or not. On Hand balances are updated when the 'Status' of Inventory and Sales transactions is changed to "Ready To Post". However, for companies that want unposted Sales Orders to updated the On Hand balances as soon as they are marked as Shipped, they can set the "Include Shipped & Approved Sales Orders in On Hand balances" Inventory Preference to "Yes".
The On Hand balance is the starting point of the Available balance calculation.