Physical Inventory Counts

Verify and reconcile physical inventory against system records.

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Count Overview

PHYSICAL COUNT FLOW
─────────────────────────────────────────────────────────────────

┌─────────────────┐     ┌─────────────────┐     ┌─────────────────┐
│ INVENTORY COUNT │     │   COUNT ITEMS   │     │ ADJUST TO       │
│ (Create/Plan)   │ ──▶ │   (Enter qty)   │ ──▶ │ ACTUAL          │
│                 │     │                 │     │                 │
│  GL: None       │     │  GL: None       │     │  GL: Adjustment │
│  Inv: None      │     │  Inv: None      │     │  Inv: ↑ or ↓    │
└─────────────────┘     └─────────────────┘     └─────────────────┘

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Creating an Inventory Count

What Happens

Action	Result
Create count	Count record created
Select location	Where to count
Add items	Items to be counted
Assign counters	Who will count
Status	Not Started

Count Creation Methods

COUNT CREATION METHODS
─────────────────────────────────────────────────────────────────

Method 1: ALL ITEMS AT LOCATION
  Count all inventory items at a location
  └── Best for: Annual physical inventory

Method 2: SPECIFIC ITEMS
  Select specific items to count
  └── Best for: Cycle counting, high-value items

Method 3: SAVED SEARCH
  Items matching search criteria
  └── Best for: By category, by vendor, by value

Method 4: BIN-BASED
  Count by bin location
  └── Best for: Bin-managed warehouses

Inventory Count Record

INVENTORY COUNT CREATION
─────────────────────────────────────────────────────────────────

Inventory Count #IC-001
├── Location: Main Warehouse
├── Count Type: Full Physical
├── Items to Count:
│   ├── Widget-A (Current On Hand: 100)
│   ├── Widget-B (Current On Hand: 75)
│   └── Widget-C (Current On Hand: 200)
├── Assigned To: Warehouse Team
└── Status: Not Started

Next: Print count sheets, count items, enter results

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Conducting the Count

Count Process

COUNT PROCESS STEPS
─────────────────────────────────────────────────────────────────

Step 1: PREPARE
  ├── Print count sheets
  ├── Stop inventory movement (freeze)
  ├── Organize warehouse
  └── Brief counting team

Step 2: COUNT
  ├── Count all items physically
  ├── Record quantities
  ├── Double-count variances
  └── Investigate discrepancies

Step 3: ENTER
  ├── Enter counted quantities
  ├── Review variances
  └── Approve adjustments

Step 4: POST
  ├── Post adjustments
  └── Review GL entries

Entering Count Results

ENTERING COUNT RESULTS
─────────────────────────────────────────────────────────────────

Inventory Count #IC-001

Item         | System | Counted | Variance
─────────────┼────────┼─────────┼──────────
Widget-A     |   100  |    98   |   -2
Widget-B     |    75  |    80   |   +5
Widget-C     |   200  |   200   |    0

Status: Counted

Next: Review variances, then adjust

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Adjusting to Actual

After counting, adjust system quantities to match physical count.

What Happens

Action	Result
Review variances	Confirm discrepancies
Approve adjustment	Authorize changes
Post adjustment	GL entries created
Update inventory	On Hand corrected

Adjustment Process

ADJUSTMENT FROM COUNT
─────────────────────────────────────────────────────────────────

Inventory Count #IC-001
         │
         │ Post Adjustments
         ▼
Inventory Adjustment #IA-001
├── Widget-A: -2 units @ $10 = -$20 (decrease)
├── Widget-B: +5 units @ $25 = +$125 (increase)
└── Widget-C: 0 units (no change)

Net Adjustment: +$105

GL Impact

Account	Debit	Credit	Why?
Inventory Asset	$125		Widget-B found (Asset ↑)
Inventory Asset		$20	Widget-A missing (Asset ↓)
Inventory Adjustment	$20		Loss recognized (Expense ↑)
Inventory Adjustment		$125	Gain recognized (Expense ↓)

COUNT ADJUSTMENT GL EXPLAINED
─────────────────────────────────────────────────────────────────

Net Effect:
  Inventory increases by $105 (net found more than lost)
  Adjustment account decreases by $105

For Widget-A (lost 2 units):
  Adjustment Expense    $20  Dr  ← Loss of 2 units
  Inventory                  $20  Cr  ← 2 units gone

For Widget-B (found 5 units):
  Inventory            $125  Dr  ← Found 5 units
  Adjustment Income          $125  Cr  ← Unexpected gain

Inventory Impact

INVENTORY AFTER COUNT ADJUSTMENT
─────────────────────────────────────────────────────────────────

Before Count:
┌─────────────────────────────────────────┐
│ Widget-A: On Hand: 100                  │
│ Widget-B: On Hand:  75                  │
│ Widget-C: On Hand: 200                  │
└─────────────────────────────────────────┘

After Adjustment:
┌─────────────────────────────────────────┐
│ Widget-A: On Hand:  98 (corrected)      │
│ Widget-B: On Hand:  80 (corrected)      │
│ Widget-C: On Hand: 200 (no change)      │
└─────────────────────────────────────────┘

System now matches physical reality

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Cycle Counting

Continuous counting throughout the year instead of annual count.

Cycle Count Methods

CYCLE COUNT METHODS
─────────────────────────────────────────────────────────────────

ABC ANALYSIS:
  A Items (High Value): Count monthly
  B Items (Medium Value): Count quarterly
  C Items (Low Value): Count annually

LOCATION ROTATION:
  Week 1: Aisle A
  Week 2: Aisle B
  Week 3: Aisle C
  ...

TRANSACTION-BASED:
  Count items that had transactions recently
  Focus on high-movement items

Benefits of Cycle Counting

Benefit	Description
Less disruption	No warehouse shutdown
Faster correction	Issues found sooner
Better accuracy	Regular verification
Lower cost	Spread workload

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Count Variance Investigation

When counts don't match system:

VARIANCE INVESTIGATION
─────────────────────────────────────────────────────────────────

Variance Found: Widget-A is 5 units short

Investigation Steps:
  1. Re-count (confirm variance)
  2. Check recent transactions
     ├── Pending shipments not fulfilled?
     ├── Returns not received?
     └── Transfers in transit?
  3. Check other locations
     └── Accidentally stored elsewhere?
  4. Review access logs
     └── Potential theft?
  5. Document findings
  6. Adjust if confirmed

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Quick Reference

Count Statuses

Status	Meaning
Not Started	Created, not counted
In Progress	Counting underway
Counted	All counts entered
Approved	Variances approved
Posted	Adjustments made
Closed	Complete

Count Types

Type	Frequency	Scope
Full Physical	Annual	All items
Cycle Count	Ongoing	Rotating subset
Spot Check	Random	Sample items
Triggered	Event-based	Specific items

Best Practices

Practice	Benefit
Freeze inventory	Accurate count
Double-count variances	Reduce errors
Investigate before adjusting	Find root cause
Document reasons	Audit trail
Review trends	Prevent future issues

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Next Steps

• Adjustments - Manual adjustments
• Transfers - Location transfers