Inventory Accounting Services
Complete the receiving Procedures before conducting the inventory count
There is a unique day in the year when you and/or a group of your employees go to the warehouses and considerately count (quantity, weight, etc.) and record each item (goods, materials, supplies, etc.) there. Then any alterations are examined and necessary adjustments are made. You possibly agree that this is an exclusive, hard and not very pleasing, but very essential procedure – an annual physical inventory. So let’s deliberate why it is important to conduct a physical inventory.
The maximum understandable reason is that you conduct a physical inventory to check if the inventory accounting records are precise and complete at a specific time (every item found in the warehouses is recorded and every recorded item
is found in the accounting records). Still, physical inventory is not only an accounting requirement. When your accounting records show a correct stock quantity, your business is more likely towards remain profitable and successful as a whole. Client relations will be good because you can rapidly distribute required quantity of products to them. You will also ensure better control of your stock levels and firm’s money; you will be intelligent to order the goods in the right quantity at the proper time evading over- or under stock. So the goal of the annual inventory count is to acquire perfect information about inventories on hand, which will benefit you to make right business conclusion.
As there are advantages presented above, a full physical inventory has its disadvantages:
- Physical inventories might be time and resource consuming (e.g. personnel costs).
- Physical inventories are more operative when manufacturing, shipping and receiving activities are stopped, which again brings in the cost factor (e.g. lost production).
- Physical inventories are typically achieved one or several times a year (normally once) and thus, accounting records are adjusted to match definite quantities on hand just a few times during a year. All other time, there might be variances between accounting records and physical quantities.
An alternative to a full physical inventory when all inventories are counted at a point in time is inventory cycle counts when you count inventory in portions throughout a year.
There are three phases of a physical inventory:
- Planning and preparation
- Execution
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