Stocktaking is the procedure of counting the inventory items on hand which is a requirement of the periodic inventory system. It is a laborious work that many businesses undertake once a month at the end of financial period, while larger retailers only once a year.
The main part of the stocktaking process is an actual count of all the inventory items in stock in all warehouses and other storage locations. This can involve identifying the items, counting and weighting them. Also, in case your organization transfers goods to third parties for consignment sales, you may need to request that your consignees perform counting of your items too.
Preparation for stocktaking process
Generally, stocktaking requires some preparation work that will help you to reconcile your inventory quantities with actual counts when the counting is finished:
- Pick the day for stocktaking and notify all the employees involved.
- Enter and post any available documents. Close all sales orders that were shipped and invoiced. Complete any returns to suppliers.
- Decide whether you need to count the inventory on consignment.
- Decide whether you need to count the reserved items.
- Run reports on warehouse balances, analyze how the quantities available (on hand) and quantities on books align.
- Make sure that all warehouse locations are labeled with their full location names (the same as on count sheets).
- Prepare the Inventory Reconciliation documents on per warehouse basis or for each storage area in large warehouses: Populate the documents with items according to the accounting data.
- Print the count sheets based on the Inventory Reconciliation documents, hand over the count sheets to the employees responsible for counts in specific locations.
Actual counting
On the day of stocktaking, freeze all the warehouse activities involving inventory, stop any picking and shipping operations; during the day, place any newly-received goods to the designated locations where they will not be counted.
The warehouse staff identifies the items, counts the inventory in the locations assigned to them, records the count results on count sheets. Using barcode scanners could facilitate counting because scanners can capture item codes, batch or serial numbers, and other data.
Processing the results
Collect the count sheets and enter the actual count data into the system by using the Inventory Reconciliations documents.
Review the variances that were found: some items were counted under or over of what the accounting data shows. If the variances are significant for specific items, count these items again and research the accounting data to find the possible sources of discrepancy.
Then, you need to reconcile the inventory quantities and costs and evaluate the actual resulting inventory.
Adjusting the inventory quantities and costs
Once the variances are approved, for the Inventory Reconciliation document, generate an Inventory Write Off to adjust the costs and quantities of items. According to IFRS, if it is found that the net realizable value of specific inventory items has declined below their cost, you can create an Inventory Write Off document and, for these items, write off the amount only, not changing the quantity. Also, you can use the Amount Only option if you need to write off any additional expenses recorded for the items that were later returned to their suppliers. For more information, refer to Creating an Inventory Write Off.
Generate an Inventory Receipt to register the item quantities that were not on books and set the appropriate costs for these items or adjust the costs only. For details, refer to Creating an Inventory Receipt.
Estimating the cost of inventory
In FirstBIT ERP, the resulting inventory is valuated at the average weighted costs which are calculated by the month-end closing process. For details, refer to Inventory Valuation.