What is Physical Inventory Count?
The Short Answer
Physical Inventory Count explained simply
A physical inventory count is exactly what it sounds like: you manually count every single item your business has in stock. This includes raw materials, work-in-progress, and finished goods. The goal is to get an accurate, real-time snapshot of your inventory. It helps you compare what your records say you have versus what you actually have. This process is often done at the end of an accounting period or when there are signs of major discrepancies.
Real-World Example
The Retail Store Inventory
Imagine a small retail clothing store. At the end of the year, the owner closes the store for a day. They go through every rack, shelf, and storage box, counting each shirt, pair of pants, and accessory. They record these numbers on a spreadsheet. Later, they compare this manual count to their inventory management system. If the system says there are 50 blue shirts but the count shows only 45, they investigate the difference. This helps them adjust their records and understand potential issues like theft or damage.
Why this matters
Accurate inventory counts are important for several reasons. They ensure your financial statements are correct, as inventory is a major asset. They help you identify shrinkage (lost or stolen items) and prevent overstocking or understocking. This leads to better purchasing decisions and avoids lost sales or wasted money on excess inventory.
Many business owners dread physical inventory counts. But doing them regularly, even cycle counts for specific items, can save you a lot of headaches and money in the long run. It’s a necessary task for good financial health.
Many business owners dread physical inventory counts. But doing them regularly, even cycle counts for specific items, can save you a lot of headaches and money in the long run. It’s a necessary task for good financial health.
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