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What is a physical inventory count?

Glossary definition

What is a physical inventory count?

A physical inventory count is a process that involves taking full physical counts of all your company’s inventory. This procedure is typically performed once a year and can be a time-consuming process depending on the amount of inventory you have or the number of locations storing your inventory.

Is taking physical count of inventory required under GAAP?

Generally Accepted Accounting Principles (GAAP) as well as International Financial Reporting Standards (IFRS) require companies with physical inventory to conduct an inventory count. 

In addition to IRS requirements, there are several other reasons why it’s important to take a physical inventory. For instance, the quantity of your inventory can impact the value of your inventory. If you have more inventory in the books than in the warehouse or supply room, you may have to write-off that inventory as a loss and thus negatively impact your balance statement. If you have more than what is in your books you will need to account for the variance and possibly have an inventory write-down due to obsolescence.

How does physical inventory count impact accounting?

Physical counts of inventory can impact accounting in many ways, from profit margins and cost of goods sold (COGS), to loss of sales due to incorrect inventory amounts delaying the completion of a project or increasing the wait time to complete an order. 

Companies wanting to avoid the interruption of an annual physical count opt for an inventory cycle count. This type of inventory counting involves counting a sample portion of your inventory at regular or scheduled intervals, rather than everything at once. It typically takes less time and improves accuracy as spoilage or theft, for example, are caught and remedied earlier. 

There are suggested methods for performing physical inventory counts. Most suggest divide and conquer. The important part is accuracy as the count serves as an audit process within inventory management.

You may have warehouses across the country and around the world, or perhaps a single supply room. In all cases, Sage Intacct connects the financial and operational data into one multi-entityIntelligent GL, helping streamline financial processes, gain control of inventory and provide powerful reporting for companies in many industries to include:

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