Physical inventory is a process where a business physically counts its entire

inventory Inventory (British English) or stock (American English) is a quantity of the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying ...

. A physical inventory may be mandated by

financial accounting Financial accounting is a branch of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of Financial statement audit, financial statements available for pu ...

rules or the

tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...

regulations to place an accurate value on the inventory, or the business may need to count inventory so component parts or

raw materials A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials/Intermediate goods that are feedstock for future finished ...

can be restocked. Businesses may use several different tactics to minimize the disruption caused by physical inventory. *Inventory services provide

labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...

and

automation Automation describes a wide range of technologies that reduce human intervention in processes, mainly by predetermining decision criteria, subprocess relationships, and related actions, as well as embodying those predeterminations in machine ...

to quickly count inventory and minimize shutdown time. * Inventory control system software can speed the physical inventory process. *A

perpetual inventory In business and accounting/accountancy, perpetual inventory system or continuous inventory system describes systems of inventory where information on inventory quantity and availability is updated on a continuous/real-time basis as a function of ...

system tracks the receipt and use of inventory, and calculates the quantity on hand. * Cycle counting, an alternative to physical inventory, may be less disruptive. The Finance or Business Manager of the unit is responsible for ensuring the annual physical inventory is properly performed, inventory records reflect actual quantities on hand, inventory valuation methods are appropriate, and adjustments are entered in the business's accounting system on a timely basis. In addition, the Finance or Business Manager is responsible for ensuring that segregation of duties is maintained throughout the inventory process to promote the safeguarding of the assets, protection of employees, and objective reporting of inventory. Specifically, no one person should be able to authorize a transaction (e.g., a purchase or sale), record the transaction, have custody of the inventory, and perform the related reconciliation.

See also