Tips for Performing Your Year-End Physical Inventory

November 5th, 2018 • Governmental Services


By: Hannah Hebsch, Staff Accountant

For many businesses, inventory is one of the largest assets on the balance sheet and one of the most important parts of its operations. Maintaining accurate inventory counts is essential to ensure that inventory is being properly reported in the financial statements. In addition to verifying the accuracy of inventory counts, conducting a year-end physical inventory count also provides many additional benefits to businesses, including assisting in purchasing and budgeting, detecting occurrences of employee theft, and identifying obsolete inventory. As you begin planning for your year-end physical inventory count, we recommend that you consider the following tips to aid in performing the count efficiently and accurately:

  • Shut Down the Warehouse – Freeze inventory movement to ensure that no inventory is entering or leaving the warehouse during the physical inventory count to be certain that information collected during the count is reliable.
  • Dispose of Obsolete Inventory – Prior to performing the physical inventory count, ensure that all obsolete inventory has been disposed or segregated so that valuable time is not spent counting these items.
  • Complete Data Entry – Update accounting records to reflect all shipping, receiving, and work-in-process activity prior to the physical inventory count being performed.
  • Pre-count if Possible – Count and seal slow-moving inventory items prior to performing the physical inventory count to promote efficiency on the day of the count. This will help minimize the amount of time the warehouse is shut down.
  • Use Count Tags – Consider using count tags, which allow counts to be documented on the inventory item being counted.
  • Use Blind Count Sheets – To verify the accuracy of recordkeeping in accounting information systems, generate reports which list all items included in inventory but do not specify the number of items currently on hand. This method will provide a more reliable count.
  • Determine Variances and Recount – Following the physical inventory count, reconcile the count to inventory module reporting and identify any variances. Recount items with variances to confirm the accuracy of the initial count. If variances remain after recounting, make adjusting entries as necessary.
  • Track Items with Variances – Monitor items with large or recurring variances to remain alert to potential theft, abuse, loss or recording errors.

As the year draws to a close and you begin planning your year-end physical inventory procedures, we hope that you consider these tips to assist you in performing an efficient and accurate physical count. If you have questions regarding physical inventory counts, please reach out to a member of our team so that we can assist you in developing a plan to meet the needs of your business.

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