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Bookkeeping Tips: Why are Inventory Counts important?

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So why are inventory accounts so important?  Making sure you have an accurate account, can make the efficiencies and customer service in a business the best. Although most counts are time consuming and drain you resources, they are very important.

Here are a few reasons as to why they are:

    • They give you a more accurate count.  This gives you the ability to ship/sell items quicker because you know that they are available.
    • A more accurate count for insurance purposes in case of a disaster.
    • For any adjustments of counts, it can point out any quantity discrepancies and/or shrinkage, therefore it can lead to additional billing or if there is any theft going on along with any damaged stock
    • Counts are also done to control inventory stock.  
      • Too much inventory stock means cash outflow with not enough cash outflow (shipment/billings to customer) and you may sit on the inventory and not sell it in a timely manner
      • Not enough inventory stock means that you are constantly ordering inventory stock, which in turn you are spending more on time and/or shipping and may even lose a sale, if it’s not readily available.

Inventory counts need to be done at least once a fiscal year (12 months), either physically counting all at once or cycle counting  though-out the year.

The counts can be done more frequently if necessary, but as long as all of the inventory is physically counted once a fiscal year, that is all that is necessary.

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Topics: Bookkeeping Accounting procedures