PHYSICAL INVENTORY PROCEDURES (revised 02.02.09)
These procedures are meant to guide you in taking a complete physical inventory. There may be some variations to these procedures depending upon some of these factors:
a) you are only taking “spot-check” or specific category physicals and not the entire inventory
b) you have multi stores and are not taking physical for all the stores at the same time
We highly recommend that you call us to review and properly plan what procedures should be implemented prior to your physical inventory process.
A) Pre-Physical Maintenance:
1. Ensure all inventory items have a valid last and average cost in their store master. This can be checked by performing inventory cost inquiries or by running inventory cost reports.
2. Ensure all purchase order/inventory receiving has been completed for those products received up to the moment of physical counting.
a) NOTE: Run this report only if you are using PO Invoicing function to invoice PO’s thru to AP:
Print a “Purchase Order Receipt Report” for all purchase orders received but not yet invoiced. You must enter a range from 3 to 3 inclusive on the field “receipt status”. You will need this report later when calculating your final inventory value for accounting purposes.
b) If you are not using the PO Invoicing function, but entering the invoices directly into AP, then you will have to ensure that all invoices are entered for the year for inventory received to correctly compare your inventory value for accounting purposes.
3. Close out as many “open” sales orders as possible by verifying or voiding them to properly affect inventory on-hand quantities.
4. Ensure that a complete dayend has been done immediately prior to starting the physical process.
B) Physical Count Process:
Note: The following procedures must all be completed before entering new sales activity or receiving new inventory.
1. Print Physical Inventory Count Sheets.
Select: 8. Physical Inventory
20. Physical Inventory Count Sheets.
The recommended responses would be:
Print Qty on Hand (Y/N): answer Yes if you wish to see current on hand Qty print beside each item although not highly recommended to ensure proper physical counting.
Sort by: 2. Bin Location
Range of Product Categories,
Sequence #’s, Stores: enter for all
Page Break on first # char of 10 we recommend that you sort on
Bin Location: complete bin location number.
2. Count inventory. It is highly recommended that you not be open for business during the counting process to ensure proper counts are made.
3. If during the counting process, inventory items are found that are not on the physical inventory count sheets, then you must create the inventory master and store files for them (do not put the count in the on-hands at this time) and manually add them to your count sheets.
4. Once all counting and creating of inventory masters is complete, then perform the physical inventory function “Copy On Hand Quantity to Work File”. This will take your computer counts and bring them into the physical work file for comparison purposes later.
This is a STAND-A-LONE function meaning no one may be on the system while performing this function.
Select: 21. Copy On Hand Qty to Work File
The recommended responses would be:
Copy Only New Items Not in Physical: answer No to copy all items into the work file.
Answer yes only if you had already done this copy to work file but found more new items to add.
Note: you should not redo this function if you have already started entering physical counts or they will get copied out.
Replace On Hand Quantities Only: No
(there are special cases for multi-stores only where this would be Yes)
Enter Product Categories: enter for all
Enter Stores: enter for all
Bin Location: enter for all
5. From this point, until the physical process is entirely complete, you may not delete items or change item numbers.
C) Entry of Physical Counts
While performing the following functions within this section, normal daily sales and inventory may take place.
1. Relink the Physical Inventory so that the work file will be sorted in bin location same way as the count sheets.
Select: 30. Relink Physical Inventory
2. Enter the physical counts for every item, every store from the count sheets. There is no rush to enter these counts since the system is keeping track of new sales and inventory activity internally and will adjust the on-hands later once you update them back to the inventory files.
Select: 22. Physical Inventory Entry/Edit
If an item is shown on multiple count sheets due to it being at multiple bin locations, enter the first physical count, then when calling up again for the second count, you merely have to select the “I”ncrease option to add the second quantity to the first quantity. If you ran the relink to sort your physical work file in bin location order then you may use the auto next option to bring up the next item for you as on the countsheets.
Note: If taking physical inventory with hand-held scanners, this function is replaced by the download functions as explained in the scanner procedures.
3. To check over your physical entries and also to get a value for your inventory, print the Physical Inventory Variance Report.
Select: 23. Physical Inventory Variance Report
The recommended responses would be:
Enter Stores: enter for all
Enter Product Categories: enter for all
Show Items with Zero Variance: yes
Show Items with Zero Count: yes or no
Show Only G/L Summary: no
This report should be checked against the count sheets to ensure that proper physical counts have been entered. If any corrections need to be made, then edit the counts in Physical Inventory Entry/Edit and reprint this report.
In order to get a complete value of your inventory, you must answer “YES” to the question above “Show items with Zero Variance”, thereby showing all of your inventory, otherwise you will only get those items that have the computer balance different than the physical balance. This inventory value will be based on average cost (or whichever parameter cost your system is set with). This value is required for proper auditing of the physical inventory. Compare this figure to your General Ledger Inventory Account. You will most likely have to make an adjusting entry for the difference.
Note:
a) If using the PO invoicing function to invoice PO’s thru to AP:
When comparing figures, you must also take into account the value of the Purchase Orders that have been received but not yet invoiced (as printed on the Purchase Order Receipt Report mentioned above in the Maintenance section) since the physical counts are including these values but your General Ledger is not, due to the purchase orders not having been invoiced through yet.
b) If NOT using the PO invoicing function and entering invoices directly into AP:
Ensure all invoices for the year have been entered and posted to GL before comparing your inventory value to your General Ledger Inventory account.
You may also print the report again answering “NO” to the question “Show items with Zero Variance” to review only those items that had a variance between computer balance and physical counts.
4. Once all physical counts have been entered/edited, reports have been printed, and you are satisfied with the results, then perform the function “Physical Inventory Update”. This function will bring back the physical counts into the inventory store files and also adjust them accordingly with any sales or receipt of goods that may have happened in the meantime.
This is a STAND-A-LONE function meaning that no one may be on the system while performing this function.
Select: 25. Physical Inventory Update
The recommended responses would be:
Enter Product Categories: enter for all
Enter Stores: enter for all
5. Finally, from the Inventory Miscellaneous Menu, perform the function “Update Master Balances” to bring the physical counts from the store files into the master files. This also is a STAND-A-LONE function.
Select: 3. Miscellaneous Maintenance
27. Update Master Balances
Physical Inventory is Now Complete!
These procedures are meant to guide you in taking a complete physical inventory. There may be some variations to these procedures depending upon some of these factors:
a) you are only taking “spot-check” or specific category physicals and not the entire inventory
b) you have multi stores and are not taking physical for all the stores at the same time
We highly recommend that you call us to review and properly plan what procedures should be implemented prior to your physical inventory process.
A) Pre-Physical Maintenance:
1. Ensure all inventory items have a valid last and average cost in their store master. This can be checked by performing inventory cost inquiries or by running inventory cost reports.
2. Ensure all purchase order/inventory receiving has been completed for those products received up to the moment of physical counting.
a) NOTE: Run this report only if you are using PO Invoicing function to invoice PO’s thru to AP:
Print a “Purchase Order Receipt Report” for all purchase orders received but not yet invoiced. You must enter a range from 3 to 3 inclusive on the field “receipt status”. You will need this report later when calculating your final inventory value for accounting purposes.
b) If you are not using the PO Invoicing function, but entering the invoices directly into AP, then you will have to ensure that all invoices are entered for the year for inventory received to correctly compare your inventory value for accounting purposes.
3. Close out as many “open” sales orders as possible by verifying or voiding them to properly affect inventory on-hand quantities.
4. Ensure that a complete dayend has been done immediately prior to starting the physical process.
B) Physical Count Process:
Note: The following procedures must all be completed before entering new sales activity or receiving new inventory.
1. Print Physical Inventory Count Sheets.
Select: 8. Physical Inventory
20. Physical Inventory Count Sheets.
The recommended responses would be:
Print Qty on Hand (Y/N): answer Yes if you wish to see current on hand Qty print beside each item although not highly recommended to ensure proper physical counting.
Sort by: 2. Bin Location
Range of Product Categories,
Sequence #’s, Stores: enter for all
Page Break on first # char of 10 we recommend that you sort on
Bin Location: complete bin location number.
2. Count inventory. It is highly recommended that you not be open for business during the counting process to ensure proper counts are made.
3. If during the counting process, inventory items are found that are not on the physical inventory count sheets, then you must create the inventory master and store files for them (do not put the count in the on-hands at this time) and manually add them to your count sheets.
4. Once all counting and creating of inventory masters is complete, then perform the physical inventory function “Copy On Hand Quantity to Work File”. This will take your computer counts and bring them into the physical work file for comparison purposes later.
This is a STAND-A-LONE function meaning no one may be on the system while performing this function.
Select: 21. Copy On Hand Qty to Work File
The recommended responses would be:
Copy Only New Items Not in Physical: answer No to copy all items into the work file.
Answer yes only if you had already done this copy to work file but found more new items to add.
Note: you should not redo this function if you have already started entering physical counts or they will get copied out.
Replace On Hand Quantities Only: No
(there are special cases for multi-stores only where this would be Yes)
Enter Product Categories: enter for all
Enter Stores: enter for all
Bin Location: enter for all
5. From this point, until the physical process is entirely complete, you may not delete items or change item numbers.
C) Entry of Physical Counts
While performing the following functions within this section, normal daily sales and inventory may take place.
1. Relink the Physical Inventory so that the work file will be sorted in bin location same way as the count sheets.
Select: 30. Relink Physical Inventory
2. Enter the physical counts for every item, every store from the count sheets. There is no rush to enter these counts since the system is keeping track of new sales and inventory activity internally and will adjust the on-hands later once you update them back to the inventory files.
Select: 22. Physical Inventory Entry/Edit
If an item is shown on multiple count sheets due to it being at multiple bin locations, enter the first physical count, then when calling up again for the second count, you merely have to select the “I”ncrease option to add the second quantity to the first quantity. If you ran the relink to sort your physical work file in bin location order then you may use the auto next option to bring up the next item for you as on the countsheets.
Note: If taking physical inventory with hand-held scanners, this function is replaced by the download functions as explained in the scanner procedures.
3. To check over your physical entries and also to get a value for your inventory, print the Physical Inventory Variance Report.
Select: 23. Physical Inventory Variance Report
The recommended responses would be:
Enter Stores: enter for all
Enter Product Categories: enter for all
Show Items with Zero Variance: yes
Show Items with Zero Count: yes or no
Show Only G/L Summary: no
This report should be checked against the count sheets to ensure that proper physical counts have been entered. If any corrections need to be made, then edit the counts in Physical Inventory Entry/Edit and reprint this report.
In order to get a complete value of your inventory, you must answer “YES” to the question above “Show items with Zero Variance”, thereby showing all of your inventory, otherwise you will only get those items that have the computer balance different than the physical balance. This inventory value will be based on average cost (or whichever parameter cost your system is set with). This value is required for proper auditing of the physical inventory. Compare this figure to your General Ledger Inventory Account. You will most likely have to make an adjusting entry for the difference.
Note:
a) If using the PO invoicing function to invoice PO’s thru to AP:
When comparing figures, you must also take into account the value of the Purchase Orders that have been received but not yet invoiced (as printed on the Purchase Order Receipt Report mentioned above in the Maintenance section) since the physical counts are including these values but your General Ledger is not, due to the purchase orders not having been invoiced through yet.
b) If NOT using the PO invoicing function and entering invoices directly into AP:
Ensure all invoices for the year have been entered and posted to GL before comparing your inventory value to your General Ledger Inventory account.
You may also print the report again answering “NO” to the question “Show items with Zero Variance” to review only those items that had a variance between computer balance and physical counts.
4. Once all physical counts have been entered/edited, reports have been printed, and you are satisfied with the results, then perform the function “Physical Inventory Update”. This function will bring back the physical counts into the inventory store files and also adjust them accordingly with any sales or receipt of goods that may have happened in the meantime.
This is a STAND-A-LONE function meaning that no one may be on the system while performing this function.
Select: 25. Physical Inventory Update
The recommended responses would be:
Enter Product Categories: enter for all
Enter Stores: enter for all
5. Finally, from the Inventory Miscellaneous Menu, perform the function “Update Master Balances” to bring the physical counts from the store files into the master files. This also is a STAND-A-LONE function.
Select: 3. Miscellaneous Maintenance
27. Update Master Balances
Physical Inventory is Now Complete!