Physical Inventory

Written By: Wendy Johnson

from July 9, 2013

A physical inventory consists of manually counting each item and comparing it to the quantity in the inventory system. The actual count is used to correct inventory quantities, identify necessary inventory adjustments and investigate variances.  Once a count is completed, the available inventory and value are recalculated. Inventory is commonly taken at the end of the fiscal year.  Some companies may take inventory more often or take cycle counts based on movement or value.

Tips and Best Practices

                Prior to the Inventory Date

1.       “You can’t count what you don’t have.”
Ship everything possible before starting the count. Pay attention to the returned goods area. Items in this area should be returned to their proper storage location, returned to the vendor, repaired or thrown out before inventory. Depending on how it is handled, an entry transaction may be necessary in the accounting system.

2.       Make sure all items have a tag identifying the item ID.

3.       “It is very difficult to hit a moving target.”
Do not allow any movement of inventory during the count.

4.       If merchandise is received during the inventory, set it aside in an area designated as “AFTER INVENTORY.”  Do not process the paperwork until after the inventory is processed.

5.       If inventory is picked up by a customer during inventory but BEFORE the item has been counted, note that on the paperwork.  Since a view of the inventory is “frozen” when the inventory count sheets are created, this item should be added to the inventory as if it was picked up “AFTER INVENTORY.”

6.       Create a schedule with dates, cutoff times, and team members.  Make sure everyone is aware the physical count will be taking place.

a.        Teams should include two members – one to document and one to count.

b.       “Don’t put the fox in charge of the hen house.”
Employees should NOT be assigned to areasstoreswarehouses where they normally work.

7.       Create tags or system of marking merchandise as it is counted. Colored dots work great for this.  Using a different colored dot for each inventory cycle can visually indicate how long an item has been in stock.

8.       Make sure all receiving has been posted, and all merchandise that has left the warehouse has been invoiced before the stock count is created.  All merchandise for resale in your storeswarehouse should be counted.  Allocated items not invoiced are part of the inventory and should be counted.

Day of Inventory

1.       Assign each team to a specific area.

2.       Make sure the tags or dots are placed on the items as they are counted.

3.       Tag any merchandise that is in the wrong place or is visibly damaged. 

4.       Have an inventory “auditor” spot-check counts after an area is completed.

a.        If the auditor finds errors – items will need a recount.  Depending on how many errors the auditor may find, a recount may be needed for a whole area or more.

5.       Once counts have been verified, the merchandise in Item #4 can be moved out of the good stock area to an area pre-designated as “misplaced stock or clean-up area” to be dealt with later.

Taking Inventory in Microsoft Dynamics GP

There are a number of key windows and features of Microsoft Dynamics GP to understand to facilitate the physical inventory process.

Stock Count Calendar - Access by clicking Inventory, choose Setup and click Stock Calendar. Use this window to setup working and non-working days for counting purposes.  This is used when creating cycle counts. Assign an analysis code to items and set cycle counts for the items based on their A, B, or C designation (Navigate to Items, choose Cards, click Select Item and click on the Options button).

                Stock Count Scheduling - Access by clicking Inventory, choose Transactions and click Stock Count Schedule. Ad hoc schedules or reusable schedules can be created in this window.  Schedules can have the following status: Available – when the stock count is created, Started – appears after clicking the start button and allows printing of forms, and Entered – appears after starting to enter counted quantities.  When creating schedules using the MASS ADD button, select appropriate restriction, options include: Site ID, ABC Code, Item Class, Item Number, Generic Description, Item Type, and Next Stock Count Date (Cycle Counts.)

Stock Count Entry – Access by clicking Inventory, choose Transactions and click Stock Count Entry. From this window, there are a number of features.

1.        Autopost Stock Count Variances – this will post adjustments when clicking the process button.  If Autopost is not checked, a batch will be created that can be located by clicking Inventory, choose Transaction Entry, and click Variance.

2.       Reuse Stock Count – if reusing stock counts, new items added to inventory will not be included in the stock count.  If not reusing the stock count, this stock count will clear after processing.

3.       As the counted quantity is entered, the variance will be calculated and displayed.  Each line must be verified before processing.

4.       If tracking lotserial numbers, the lotserial number window will open when tabbing past the Verified field.

5.       To assist in identifying variances, check the Unposted Transactions button. Issues could include a shipped item that was not billed.

6.       The Transaction History button may help identifying a discrepancy.

7.       When the variance results and all lines have been verified, click the Process button.
The following occurs when processing the count:

·   Variance transactions are created

·   Stock count history records are updated

·   The Last Used Date is updated with the current user date if the stock count is selected for reuse.

·   All captured and counted values in the Stock Count tables are cleared.

·   The item/site is updated for the Last Stock Count Date and Last Stock Count Date Time.

·   If Stock Count Interval is set for the item/site the Next Stock Count Date and Time is calculated

·   The Stock Count Exception list is generated, if exceptions existed

·   The stock count process will fail until the exceptions are fixed.

For more information, check the Help Menu on the Stock Count windows or refer to the Inventory printable manual.