Accounting Best Practices, Fifth Edition

16–22. Streamline the Physical Count Process

Some companies find that they are unable to produce anything for several days while count teams perform a physical count of all on-hand inventory. When this happens, a corporation loses sales, since it cannot produce anything. In addition, the resulting inventory is not entirely accurate, since the counting process may include people who do not have a thorough knowledge of what they are counting, which results in incorrect counts and misidentified parts. Also, key people are taken away from their other work to conduct the count, resulting in little or no attention to customers for the duration of the count. Finally, the accounting staff usually stops all other work in order to devote themselves to the processing of count tags. Thus, the physical count is a highly disruptive and inaccurate process.

For those organizations that cannot entirely dispense with the physical count, it is still possible to streamline the process so that fewer resources are assigned to it, while keeping the accuracy level relatively high. The improvements are as follows:

• Eliminate some inventory from the count with cycle-counting. For situations where a company has just started cycle-counting (see the “Eliminate the Physical Count Process” section earlier in this chapter) but has not yet brought accuracy levels up to a sufficiently high level, it may still be possible to concentrate the cycle-counting effort on a few key areas. By doing so, the accuracy of the ...