Stock Count & Inventory Controls

Stock count is the same as inventory records
➛ False
Stock count is physical; records are accounting entries.

Cycle counts are done continuously
➛ True

Stock counts help detect theft
➛ True

Inventory discrepancies should be ignored
➛ False
They must be investigated and corrected.

1. A stock count is a physical count of inventory

2. Differences between records and actual stock are called discrepancies

3. Loss of inventory is known as shrinkage

4. Counting inventory in parts is called cycle 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?

What is the discrepancy?
➛ 40 units shortage

What type of issue is this?
➛ Inventory shrinkage | loss due to theft, damage, or error

Journal Entry Required


Amount depends on cost per unit.

Counting all inventory once a year
➛ Full Stock Count

Counting a few items every week
➛ Cycle Count

Counting inventory without stopping operations
➛ Cycle Count

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

Questions

What could be causing these discrepancies?
➛ Theft
➛ Damage or spoilage
➛ Recording errors
➛ Misplacement of goods
➛ Supplier errors

What type of stock count should be implemented?
➛ Cycle counting | frequent and continuous checking

How can internal controls reduce these differences?
➛ Segregation of duties
➛ Proper documentation
➛ Regular stock counts
➛ Restricted access to inventory
➛ Use of inventory systems

Why is accurate inventory important for financial reporting?
➛ Ensures correct COGS
➛ Ensures accurate profit
➛ Prevents misstatement of assets
➛ Supports reliable financial statements

What is a stock count?
➛ Physical counting of inventory on hand.

Name two types of stock counts.
➛ Full stock count and cycle count.

What is shrinkage?
➛ Loss of inventory due to theft, damage, or error.

Why are stock counts important?
➛ To ensure accuracy, detect errors, and prevent fraud.

What happens when physical inventory is less than recorded inventory?
➛ Inventory is reduced and a loss (shrinkage) is recorded.

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Inventory Turnover & Analysis ➧ Here