Intended learning outcomes: Identify physical inventory, inventory adjustment, and inventory valuation. Present an example of a stock inventory list.
Inventory accounting is dealing with valuing inventory (cf. [ASCM22]).
Physical inventory is the process of determining inventory quantity by actual count. (Note: The term physical inventory can also mean the actual inventory itself. See Section 12.1.1.)
Inventory adjustment is a change made to an inventory record to correct the balance, to bring it in line with actual physical inventory balances.
Inventory valuation involves determining the value of the inventory at either its cost or its market value (cf. [ASCM22]).
Physical inventory, inventory adjustment, and inventory valuation are needed to ensure goods on hand, for example. Furthermore, inventory is a company asset: One of the entries on the assets side of the balance sheet is the value ofon-hand balance and in-process inventory. Tax authorities demand an exact physical inventory as well. Figure 11.1.3.1 presents an example of an inventory list that shows the value of the inventory stocks.
Fig. 11.1.3.1 Example of a stock inventory list.
The lists generally class items according to group. Additional statistics at the end of the list, not shown here, group product range items according to certain other criteria.
Even with a very precise recording of book inventory, errors are possible — particularly in the case of unplanned, or unannounced, transactions:
- Errors in the data media recording inventory transactions
- Recording of erroneous quantity numbers
- Duplicate entry or failure to record a transaction
- Incorrect physical counts at the time of stock receipt
- Errors in the physical assignment of storage areas (stock sites are entered into the computer that in reality contain no stock)
- Shrinkage, or reduction of quantities in stock by pilferage, deterioration, or misuse
These errors are relatively difficult to detect. Physical inventory counts are necessary if users are to retain their trust in record accuracy, that is, the accuracy of the data in the computer. Depending on the results of physical counts of inventory, new controls may be established, or controls that have proved to be unnecessary may be dropped.
Particularly difficult is the inventory of items like coffee beans, leaves, seaweed, or gasoline. Such items change weight or volume significantly over time due to moisture or temperature.[note 1101]
Continuation in next subsection (11.1.3b).
Course section 11.1: Subsections and their intended learning outcomes
11.1 Stores and Inventory Management
Intended learning outcomes: Present characteristic features of stores management. Produce an overview on inventory transactions. Describe physical inventory and inventory valuation.
11.1.1 Characteristic Features of Stores Management
Intended learning outcomes: Present in detail characteristic features such as storage location ID, storage type, valuation basis, stock organization, embedding in the flow of goods, storage management principle, inventory issuance principle, and inventory control principle.
11.1.2 Inventory Transactions
Intended learning outcomes: Differentiate between perpetual inventory and book inventory. Produce an overview on the sources of planned and actual inventory transactions.
11.1.3 Physical Inventory and Inventory Valuation
Intended learning outcomes: Identify physical inventory, inventory adjustment, and inventory valuation. Present an example of a stock inventory list.
11.1.3b Periodic Inventory and Cycle Counting
Intended learning outcomes: Differentiate between the periodic physical inventory procedure and the cycle counting procedure.
