Physical inventory is one of the most important forms of inventory. After the institution performs the routine work of accounting, which begins with recording in the journal, then posting to the ledger, and finally preparing the trial balance before the inventory, another stage begins, which is the inventory, and there is great importance to the inventory process in general, it is a process An audit of what the institution owns (assets) and all that it is obligated to do towards others (liabilities), and the objective of the physical inventory is to compare what is recorded in the accounting books with what is actually and materially present in the institution, then record the necessary adjustments to match the account balances with what is in reality and Give an honest picture of the organization in the financial statements, and in this article we will show you everything you need to know about physical inventory.
What is Physical Inventory?
Physical inventory is an organized method of calculating a company’s inventory, with employees using a specific method for counting the items and merchandise in managing a warehouse.
Generally, most companies make a physical inventory of their inventory at the end of the reporting period.
Types of Physical Inventory Counts
There is more than one type of physical inventory, and the differences between all of these types lie in the data in the company
There are 4 types of physical-inventory, and the following are those types in some detail:
Manual Completion
It is a type of physical inventory in which paper counts or sheets and pencils are used to record inventory.
The most important feature of Manual Completion is the low cost of the materials used, but it is not without flaws. One of its main drawbacks is its high rate of errors.
Electronic Counting
It is another type of physical inventory in which inventory is recorded through the use of scanners, barcodes or mobile phones.
The most important advantage of Electronic Counting is that it greatly reduces counting errors, and its drawback is that this type requires many materials and additional time to complete.
Cycle Counting
One of the most important types of physical inventory, in which random parts of the inventory are counted at any time, not a specific time, and its most important advantage is that it reduces the additional time for counting as well as the resources used.
Also, through Electronic Counting, the company does not need to stop its operations completely during the counting, but it has a drawback that sometimes it calculates the inventory less than the ideal number required to calculate it.
Full Inventory
The last type of physical inventory, in which an inventory of all inventory is taken at one time, in which case companies bring in temporary employees for the process.
The most important feature of Full Inventory is that it provides reliable and accurate inventory records in the creation of the annual financial document.
As for its drawbacks, it takes a lot of time and labor, and it also requires the operational closure of the company or the entire organization until it is terminated.
Physical Inventory vs. Cycle Counting
There is a difference between Physical Inventory and Cycle Count, physical inventory is a comprehensive annual inventory of most of the company’s assets, while Cycle Counting is on parts of inventory and not the entire inventory.
Physical inventory is not always automated, unlike Cycle Counting, which can always be automated, which saves time and effort, reduces human errors, and provides real-time data.
Therefore, the most effective and accurate inventory processes are those that combine automated systems as well as Cycle Counting.
Benefits Physical Inventory Count
There are a large number of benefits and advantages that physical-inventory provides to its users, and the following are the most important benefits:
- Maintain accurate and up-to-date inventory records.
- Provide better forecasts for sales and purchases.
- Ensure that the right quantity of items is always in stock.
- Maintaining and satisfying customers.
- The ability to meet your customers’ requests immediately or tell them when they will be fulfilled.
- Improving the profits of the company or organization in general.
- Plan for any losses and avoid depreciation of the items or products you own.
- Avoid the high cost of storing items.
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What are Issues with Physical Inventory?
Despite the great benefits and advantages provided by the physical-inventory method, it also faces some problems, as it takes a long time and also takes a lot of time to complete.
Also, during the physical inventory process, companies sometimes close their operations, thus not meeting the demands and needs of customers during that time.
Also, the biggest problem that may make a number of companies do not use this method in the inventory is that some
Companies do not have enough staff to perform a complete physical inventory
Sometimes inconsistencies occur, as some internal employees do not record inventory accurately or incorrectly categorize items.
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