It’s time for your planning call with the auditors, and they ask whether you are conducting a full physical inventory count at year-end, or if you have inventory cycle count procedures in place instead? It’s an interesting question some businesses may not even have considered.
If inventory appears on your balance sheet, evaluating the benefits of implementing inventory cycle counts — auditing a small subset of inventory continuously throughout the year, versus conducting a comprehensive, year-end physical inventory — could benefit your business.
Traditionally, you've shut down operations on December 31 for a full physical inventory count, bringing in extra staff and having auditors perform test counts afterward. This multiday process halts production and shipping, making it expensive but necessary to verify inventory accuracy and reset records each year.
Inventory cycle counts, in contrast, are conducted on a predetermined schedule — such as daily or weekly — based on a program that selects inventory items with higher turnover rates. The system generates a list of items to be counted throughout the year; it ensures all inventory is counted at least annually, and frequently moved items are reviewed more often.
Improve Stock Accuracy/Management. This method enables organizations to systematically reconcile inventory records with what they have in stock, promptly identifying discrepancies to maintain data accuracy and reliability. Additionally, real-time inventory management enables maintaining adequate stock levels, which mitigates potential disruptions in the production process and ultimately improves customer service.
Enhanced Operational and Cost Efficiencies. Inventory cycle counts contribute to operational efficiency by reducing disruptions. Unlike full physical inventory counts, cycle counting can be seamlessly integrated into daily routines, enabling organizations to uphold workflow continuity while maintaining accurate inventory records and minimizing both downtime and productivity loss.
Cycle counting represents a strategic approach to inventory valuation that improves accuracy, enhances operational efficiencies and generates cost efficiencies. This practice is integral for organizations seeking to optimize their inventory management processes.
Contact Beth Reho or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.