The difference between the Physical Inventory and Cycle Count is one of the most important topics that many are looking for, especially the category of people working in the field of accounting, as it is the basic process of knowing the quantity of inventory of goods entering or leaving and recording them in records to know the details of all the sums of money spent and what was deposited in the accounts of the institution In this article, we will talk about Cycle Count and Physical Inventory and the difference between them.
What is an inventory?
The concept of inventory is not only related to the idea of inventory. In fact, it is a list prepared in a certain period that includes all the assets and liabilities of the company “debts”.
The commercial law imposes an annual inventory list on all industrial and commercial companies, and as part of the inventory all items are calculated on the specified closing date “the end of the accounting period or year”, and in many cases inventory movements and any entry or disbursement from warehouses are prohibited during this Period.
What is cycle counting?
The cycle counting of the warehouse is one of the methods of checking inventory, which is used for the purpose of controlling inventory, and in which a limited group of inventory is measured at a specific location on a specific day, and this method is one of the most common solutions in controlling inventory.
This method allows companies to rely on different items within the warehouse without collecting the entire inventory, because another number of items are counted for the entire warehouse, and there are 3 types of cycle counting as follows:
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1. Control group
This type is used to calculate the items that provide the best results, by focusing on a small number of products.
2. Random sample
In it, the selected products are counted randomly, and in the event that the warehouse has a large number of products, a random sample is taken and analyzed.
3. ABC analysis
It is one of the alternative methods for the random sampling method, in which samples are randomly numbered, and it is based on the Pareto principle where 80% of the effect results from 20% of the complete causes.
What is a physical inventory count?
The physical inventory count allows monitoring the assets in the stores on an ongoing basis, and the institution can carry out the periodic inventory at the end of the fiscal year, then compare it with the actual stock in the stores, and in order to avoid errors, speed in work must be avoided and accuracy must be investigated.
In fact, the physical inventory process takes a lot of time, but with the use of inventory management techniques and modern automation systems, calculation methods have become easier.
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The difference between cycle counting and the physical inventory counting
The cycle counting is more effective if you want the best solution in terms of price; the cycle counting does not take much time and thus saves a lot of money when using it.
As for the physical inventory, it is the best option for companies that have a discounted product, as it will help them in ensuring a more accurate calculation of the product in addition to maintaining focus while maintaining inventory, and that process will take longer.
The benefits of cycle counting over physical inventory
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The cycle counting is one of the methods that measures a fixed and fixed number of items, and is sometimes an alternative to taking a complete physical inventory once a year.
Generally speaking, the main idea of the course path is to find the documents with error and then find the cause of the error, which helps reduce operating expenses. The benefits of cycle counting over physical inventory are as follows:
1. Reducing costs
One of the most important benefits of this type of inventory is the low prices, as most businesses neglect to carry out large-scale inventory checks.
However, when taking care of this matter and conducting that inventory, a lot of operational expenses can be saved, as well as costs resulting from downtime.
2. Get improved accuracy
As through this method of inventory, warehouse workers can identify incorrect data, and then correct them, which will result in increased consumer satisfaction.
3. Reducing losses
The periodic inventory keeps track of all items in real time, which prevents inventory from slipping or losing as a result of one of the theft operations or as a result of its expiration or exposure to damage.
4. Better work monitoring
This type of inventory will help you better monitor your business, by knowing how the product continues to flow through your warehouse, where you can know when the products are working well and thus be able to make better choices.
5. Increase operational efficiency
This inventory significantly increases your operational efficiency, as it reduces variations in your inventory, and this means less time to handle items, as well as less time spent searching for the wrong products.