Accounting Best Practices, Fifth Edition

16–23. Track Inventory Accuracy

A controller is always concerned about the accuracy of the inventory. If it is off by even a few percent at the end of the year, the annual physical count may result in a large alteration in profits that will cost the controller his or her job on the grounds that inaccurate financial statements have been issued. Furthermore, the purchasing staff cannot properly order replacement parts if it does not have an accurate idea of what is currently in stock, while the production department never knows when parts are available for current jobs. Thus, all these departments are deeply affected by the accuracy of the inventory.

The way to gain some assurance about overall levels of accuracy is to track inventory accuracy with periodic audits. By doing so, one can determine if there is an accuracy problem, resulting in further steps as outlined elsewhere in this chapter, such as locking down the warehouse and shifting inventory into the floor stock area. To review accuracy, print out a report from the computer system that shows the inventory in each warehouse location. Then an accounting person should take a sample of items from this report and verify that the items listed on it are indeed in stock in the correct quantities, and that they are stored in the correct locations. Similarly, a small sample of items should be traced from the shelf to the report to verify ...