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What is an inventory cycle count and how does it impact accounting?

Glossary definition

What is an inventory cycle count and how does it impact accounting?

Inventory cycle counts are a method of counting a portion of your inventory at a frequency greater than once each year. The purpose of conducting an inventory cycle count is to ensure your inventory is accurate and matches your inventory records. 

What is the difference between cycle count and physical inventory? 

Inventory cycle count procedures differ from a physical inventory count in two primary ways. With cycle counts:

1. Only a sample portion of total inventory is counted 

2. Inventory counts are done more than once a year

While the method of choice for counting in inventory management is up to you, companies are required by Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) to state the value or cost of your inventory. These two governing bodies differ in number of costing options, costing formulas, and inventory reversal write-downs. 

How inventory cycle count procedures can impact accounting

An inventory cycle count can impact accounting in the financial statements, cost of goods sold (COGS), and in other areas. Cycle counting inventory serves as an auditing process as part of inventory management. And like other accounting audits, you rely on accurate numbers. When those numbers (or counts in the case of inventory) are inaccurate, inventory write-downs and inventory write-offs may occur.

Your inventory – whether processed to be sold, bought to be sold, bought to facilitate business value, or even used as collateral to secure financing – is vital to your business. Your inventory data needs to be visible and complete, and it needs to be current and accurate. This is where inventory cycle count procedures can help with inventory management. 

Inventory cycle count best practices

If you prefer to avoid halting your business to perform an annual physical inventory count, you can use inventory cycle counts. Rather than counting everything at once, you count samples of your inventory within a scheduled time period. You do this continuously throughout the year across all of your inventory. Many companies invest in barcode scanning to streamline inventory tracking and enable their employees to make quick work of cycle counting – and avoid having to manually enter data.

Sage Intacct Inventory Automation levels up your accuracy and makes quick work of inventory cycle counts.

Daily cycle counts and reconciliation of inventory variances

Inventory reconciliation is a procedure in which you compare physical inventory counts with records of inventory on hand. Cycle counts of inventory means reconciling a small sample portion of inventory at a time. This process streamlines inventory reconciliation because it transforms the cumbersome process of physical inventory counts into smaller, more manageable tasks. The benefits of cycle counts include improved inventory accuracy, the ability to account for possible inventory variances sooner, and the avoidance of interrupting the flow of your business.

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

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