How do you reconcile physical inventory counts with perpetual inventory records?

2 How often should you reconcile inventory?

The frequency of inventory reconciliation depends on various factors, such as the size and complexity of your inventory, the volume and variability of your sales, the risk and impact of inventory errors, and the resources and time available for the task. Generally, you should reconcile inventory at least once a year, preferably at the end of your accounting period, to prepare your financial statements. However, you may also want to reconcile inventory more often, such as quarterly, monthly, or even weekly, to monitor your inventory performance and address any issues promptly.

3 What are the steps to reconcile inventory?

The steps to reconcile inventory may vary, but they typically involve conducting a physical inventory count, comparing it with perpetual inventory records, identifying and analyzing discrepancies, and correcting and reporting them. Counting can be done manually or with automated methods such as barcode scanners or RFID tags. Rules and guidelines should be established for the counting team, such as how to handle damaged or obsolete items, count items in transit or on consignment, and deal with discrepancies or interruptions. Comparing the physical inventory count with perpetual records should take into account any adjustments or transactions that occurred between the two dates. Software tools or formulas can automate or simplify the comparison process. Discrepancies should be classified by type (overages or shortages) and by cause (counting errors, recording errors, theft, damage, or shrinkage). The impact of discrepancies on inventory value and cost of goods sold should be calculated using an appropriate inventory costing method such as FIFO or LIFO. Finally, discrepancies should be corrected and reported to relevant stakeholders and policies and controls should be reviewed and improved to prevent future discrepancies.

4 What are some best practices for inventory reconciliation?

Conducting inventory reconciliation can be a challenging and time-consuming task, but you can make it simpler and more effective by following some best practices. Plan and schedule your inventory reconciliation in advance, allocating enough resources and time for the task. Organize and label your inventory items and locations in a logical order and clearly, as this will help reduce the risk of errors. Train and supervise your counting team, assigning them specific roles and responsibilities, while providing them with the necessary tools and equipment. Additionally, verify and reconcile your inventory data regularly to identify discrepancies quickly. By following these steps, you can ensure that physical inventory counts are reconciled with perpetual inventory records accurately.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?