how to conduct a quality inven...

How to Conduct a Quality Inventory

What is a Stock Inventory?

A stock inventory is a recurring operation in stores, especially for retailers with products in stock. It is an essential step in accounting because it allows you to close the fiscal year and prepare the mandatory annual accounts. A stock inventory cannot be improvised, as it is a legal obligation and must be carried out professionally for the sake of accuracy. It can be done physically or using accounting software. Why and how to conduct a stock inventory?

What are the legal obligations regarding inventory?

A stock inventory is mandatory for any individual or legal entity engaged in commercial activity. It must be carried out at least once a year, specifically on the closing date of the fiscal year, unless the company is able to implement a reliable perpetual or cycle counting system. In this case, the annual inventory can be carried out on a date other than the fiscal year-end.

The inventory consists of recording available stock, whether it be:

Merchandise;

Finished goods;

Raw materials;

Services.

Why take a stock inventory?

Taking stock inventories ensures good business management. Indeed, inventory is an effective tool for:

Preventing management errors;

Determining the value of products in stock;

Knowing which goods are present and which are missing from stock.

How to take a stock inventory?

To take an inventory, you must record the goods stored in the warehouses, then compare them to the list of products purchased and sold or manufactured. In principle, the difference between inflows and outflows during the last inventory should correspond to what is in stock. If necessary, an investigation can determine the origin of the management error or the disappearance of the goods.

When should you conduct a stock inventory?

Inventory should be carried out regularly. It can be performed at three different intervals, depending on the nature of the business:

Annually, to account for the products in stock at the end of each accounting period;

Perpetual, when there is not much stock and the products can be inventoried each time they enter or leave the stock;

Cyclical, when the inventory only concerns a portion of the stock and is carried out periodically.

What are the keys to a quality inventory?

Stores usually close during inventory time to avoid disrupting stock levels. Three principles help to conduct a quality inventory:

Separation of duties: The counting of products should be done by a team of three people: one to count, one to take notes, and one to supervise;

Preparing the inventory count sheets: these must specify the storage location, the type of products, the supplier, and the unit of measurement. Pre-numbered count sheets are more practical and easier to fill out. Furthermore, each sheet must be validated and signed after verification, then submitted to the accounting department.

The inventory must be complete, meaning that all stock items without exception must be counted.