Get Ready for Year-end Physical Inventory Count
Posted Sep 08, 2016
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Businesses must carry out year-end inventories to meet tax requirements and to gather accurate dat
a for financial statement purposes. Are you ready for your year-end physical inventory count? For some businesses, a complete physical inventory count is a frustrating and time-consuming process with numerous obstacles. However, with proper planning, management and procedures, you can make the process go smoothly and get accurate inventory counts.
Planning
There is a lot you can do ahead of time to get prepared. Making the inventory area clean and organized is important. You could divide the area into sections and set aside damaged or outdated inventory. For the sections of inventory with low turnover, you could count and tag them ahead of time.
Management
Inventory ties up a lot of cash. Just like cash flow, it can make or break your business. Therefore, inventory management is important. Here are some techniques that will help you improve your inventory management:
- Set up a Par Level (minimum amount of product that must be on hand at all times) for each of your products. When your inventory stock dips below these levels, you know it’s time to order more.
- Manage relationships. You may need to return a slow selling item or restock a faster seller very quickly. It is important to have a good relationship with your suppliers.
- Prepare a contingency plan. You may have an unexpected increase in sales which results in a stock shortage, or you may have a slow selling product that takes up all your storage space. Identify the risks and prepare a contingency plan which includes how you will react and the steps you will take to reduce the risk.
- Regular Auditing. If you take a full physical inventory count at the end of the year and you often run into problems, regular reconciliations are important. You could prioritize your inventory so that you will know which products need more attention.
- Accurate Forecasting. Good inventory management relays on accurately predicting demand. Things such as trends in the market and this year’s growth rate can help you create a more accurate forecast.
Procedures
Your company should have written procedures for the physical inventory count, so that everyone follows the same steps. The physical inventory count should be conducted when your business is closed. The process of receiving and shipping products should be delayed until after the physical inventory count is completed. Damaged or obsolete inventory should be segregated before the physical inventory count begins. It is best to have two individuals count the inventory together with a supervisor assigned to each inventory area. One person should count the items and the other should record the count. The completed count sheet should be signed by both individuals as proof of dual control. The supervisor for the area should perform recounts on a sample basis to verify counts are accurate.
Smooth and painless physical inventory counts do not happen by accident. A proper plan in advance, good management and well-designed procedures assist in making the process go more efficiently.
Reference:
http://www.hhcpa.com/blogs/audit-accounting/are-you-ready-for-your-year-end-inventory-count/
http://www.accountingtools.com/procedure-inventory-count
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