Stock Count & Inventory Controls

Module 4:
Inventory & Costing

Duration:
45-60 minutes

Level:
Beginner to Diploma-Level

➛ Define stock count | physical inventory count

➛ Explain the purpose of stock counting

➛ Identify types of stock counts

➛ Perform a basic stock count procedure

➛ Identify causes of inventory discrepancies

➛ Understand how stock counts support inventory control

➛ Explain the relationship between stock count and accounting records

➛ Stock Count
➛ Physical Inventory
➛ Inventory Records
➛ Discrepancy
➛ Shrinkage
➛ Cycle Count
➛ Full Stock Count
➛ Adjustment

A stock count (physical inventory count) is the process of

➛ Physically counting all inventory items
➛ Comparing actual quantities with accounting records

It ensures accuracy of inventory records

Stock counts help businesses

➛ Detect errors in records
➛ Identify theft or damage
➛ Ensure accurate financial statements
➛ Maintain proper inventory levels
➛ Improve internal controls

1. Full Stock Count
➛ Entire inventory counted at once
➛ Usually done at year-end
➛ Time-consuming but thorough

2. Cycle Count
➛ Inventory counted in sections
➛ Done regularly | daily/weekly/monthly
➛ Less disruption to operations

1. Stop inventory movement | no sales or purchases
2. Organize inventory properly
3. Count physical inventory
4. Record quantities
5. Compare with inventory records
6. Identify discrepancies
7. Adjust records

➛ Theft | internal or external
➛ Damage or spoilage
➛ Recording errors
➛ Misplacement of goods
➛ Supplier or delivery errors

When differences occur

If physical > recorded
➛ Increase inventory

If physical < recorded
➛ Decrease inventory shrinkage

Stock counts support internal control by

➛ Verifying inventory accuracy
➛ Detecting fraud
➛ Supporting audit processes
➛ Improving decision-making

➛ Stock count is the same as inventory records
➛ Cycle counts are done continuously
➛ Stock counts help detect theft
➛ Inventory discrepancies should be ignored

1. A stock count is a __________ count of inventory

2. Differences between records and actual stock are called __________

3. Loss of inventory is known as __________

4. Counting inventory in parts is called __________ counting

A business records 500 units in its system, but physical count shows 460 units.

Questions

➛ What is the discrepancy?
➛ What type of issue is this?
➛ What journal entry is required?

Identify the type of stock count

➛ Counting all inventory once a year
➛ Counting a few items every week
➛ Counting inventory without stopping operations

A warehouse reports frequent differences between recorded inventory and physical stock.

Questions

➛ What could be causing these discrepancies?
➛ What type of stock count should be implemented?
➛ How can internal controls reduce these differences?
➛ Why is accurate inventory important for financial reporting?

➛ What is a stock count?
➛ Name two types of stock counts.
➛ What is shrinkage?
➛ Why are stock counts important?
➛ What happens when physical inventory is less than recorded inventory?

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Answers ➧ Here

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Inventory Turnover & Analysis ➧ Here