The Ultimate Physical Count Checklist (2023)

Conducting a physical inventory count is an important activity for businesses of all kinds. While retailers might first come to mind when thinking about measuring physical inventory, in truth, all types of businesses — from manufacturers to services organizations — carry an inventory of some kind.

A physical inventory count requires attention to detail, precision and a well-thought-out process. A physical inventory count checklist can be an excellent way to ensure you understand and follow the right steps, ensuring accuracy and making the most of your efforts.

What Is a Physical Inventory Count?

As the name suggests, a physical inventory count is an organized, methodical and structured process used to count a business's stock. Businesses use physical inventory counts to provide an audit or verification of the data in inventory systems and conduct them at scheduled times that typically coincide with financial reporting periods. Inventory counts are also critical for ensuring sales and purchase forecasting reliability.

(Video) What Is a Physical Inventory Count?

There are two primary methods of conducting a physical inventory count:

  • Manual — Using paper and pencil to count and record inventory.
  • Electronic — Relying on technology like scanners, RFID, barcodes or mobile devices to count items.

If you're trying to determine the best way to count inventory, businesses often choose cycle counting. Cycle counting and inventory control software can help to eliminate the root causes of errors by creating more dependable control processes. Supporting a cycle counting strategy with inventory management software can automatically prompt employees to count certain items and categorize produces based on volume or value. Ultimately, this leads to more accurate inventory information and better quality assurance.

The ultimate goal in conducting a physical inventory count is for the records to match products on hand as closely as possible.

(Video) Inventory Physical Checklist

24-Step Physical Inventory Count Checklist

When conducting a physical inventory count, employees need to take several steps to ensure the process is as seamless and accurate as possible. Here’s a physical inventory count checklist — covering pre-count, during the count and after the count.


  • Select and notify the employees involved in the physical inventory count. That can be a combination of seasoned and new employees, but you want to select trustworthy, detail-oriented and conscientious employees. Put these employees in pairs where one employee counts and the other records.
  • Schedule a time for the count. That is generally done outside of regular business hours and after seasonal rushes, especially in retail settings, to avoid disrupting customers and daily operations.
  • Train all employees involved in the physical inventory count. Ensure they receive clear details about the steps they must take and how to conduct and document the count.
  • Organize your count by location rather than by product. That helps to make the process more efficient and provides an orderly way for employees to conduct the inventory count.
  • Create maps or diagrams indicating the counting areas and clearly labeling the inventory stored in each area.
  • Ensure that all inventory is clearly labeled with fixed labels (so they aren’t likely to move or fall off shelving) and those labels are easy to find and read, if not using bin management.
  • Assign employees to specific areas that they are responsible for counting. That helps manage the counting process and makes it easy to identify employees who may need to provide or clarify information after the count is finished.
  • Track any consignment products you stock separately. Avoid including them in the same count as other inventory items. Consignment inventory refers to items that continue to be owned by the producer while another company (like a retailer or distributor) stores them and ships them to customers, only paying for the inventory once it sells.
  • Get count tags. Count tags are two-part forms that are filled out by those conducting the physical inventory count. They are numbered to help document inventory and ensure accurate recordkeeping. Scanners and other electronic counting devices automate this process.
  • Make plans to observe areas where inventory is being counted. Consider scheduling "surprise visits," especially in areas where valuable items are located, to reduce the chances of theft or fraud.

During the Count

  • Designate a person to demonstrate the process on the day of the count to ensure employees understand what they are doing and how the process works. Make sure everyone receives examples of the documentation method you use as a guide for them to follow.
  • Avoid stopping all activity in the warehouse. But it's crucial to ensure that no stock is coming in or leaving the area as the physical inventory count occurs. That will lead to confusion and increase the chances of mistakes.
  • Team members should fill out a count tag, attaching one copy to the inventory item and retaining the other copy whether they’re counting manually or using a scanner. The project leader collects the tags and confirms that they have been filled out appropriately and that no tags are missing.
  • Tags should be reviewed for accuracy, then given to staff members assigned to input the information into the inventory management system. If you’re using scanners, this won’t be necessary since the information automatically feeds into the system.
  • As areas are counted, staff should mark them so it is clear that the count of inventory has already been conducted in that area.
  • Conducting spot checks is a crucial step to ensure accuracy and help spot potential errors or process breakdowns that need to be corrected.
  • Leave misplaced items where they are if you come across any during the count.
  • Conduct a final tour of the areas being counted. Take this step to ensure that all items have been tagged, indicating that they have been counted.
  • Plan time for breaks and provide food and refreshments to employees to thank them for their contributions, especially when counts occur outside of regular working hours.


  • Analyze the physical inventory count results to identify and resolve any problem areas or where process improvements might be needed to improve inventory accuracy.
  • Communicate broadly with employees, not only those involved in the count but all employees throughout the organization. Let them know the physical counts' results, any major discrepancies, and seek their input on what might have led to these mismatches.
  • Take steps to investigate any suspicions of theft if your inventory count raised any such concerns.
  • Take steps to evaluate and update procedures, implementing cycle counting to facilitate future counts, and institute training or improve communication if your physical inventory count suggests employee error.
  • Recognize and reward employees in areas where the inventory count showed high levels of accuracy. Offer constructive feedback to employees in areas where there were significant inconsistencies. Seek their input to establish new policies, procedures and practices to minimize such problems in the future.

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Move Beyond Spreadsheets With Inventory Management Software

While some companies use spreadsheets or even paper to manage inventory, this is far from an ideal solution. Not only are these approaches prone to error, but they fail to offer the more robust functionality of inventory management software that can help minimize waste and maximize the ability to make informed decisions related to purchasing and sales.

Today's cloud inventory management software can track products across numerous locations and gives your workforce access to up-to-the-minute data on inventory levels at all times. This technology can automate replenishment, lot and serial tracking and cycle counting. The right system will help establish better inventory management practices that help you save time, reduce errors and arm your management staff with the information they need to make essential business decisions.

(Video) Physical Inventory Verification Process in SAP I MI01- Create PID I MI04 -Enter Count I MI07 -Post

An inventory management system and cycle counting can reduce the frequency of physical counts since each item is tracked as it enters, moves around and leaves your facility while yielding fewer discrepancies to resolve. When you do need to complete a physical count, they will be faster and more accurate with this software in place. This is especially true for businesses that use scanners connected to the inventory management solution.

Inventory management is a critical element of any business's operations and significantly impacts the bottom line and overall success. Conducting physical inventory counts regularly — often yearly in conjunction with the annual budgeting and reporting cycles — ensures accurate records and helps with important choices about stock levels to meet customer demand and ensure continuity in business operations. Using technology to improve inventory management process and streamline physical counts can help your business reduce handling costs and increase cash flow.


How to do a full physical inventory count? ›

The process typically involves a retail staff member (or team of workers) going through the retailer' sales floor and stock room and counting each item. The data is then recorded either manually, using pen and paper or electronically using a mobile device.

What are the steps involved in a physical count? ›

Step-by-Step Physical Inventory Count Instructions
  • Start with a Plan: If your company has one already, great. ...
  • Decide on the Interval Between Counts: As part of the plan, decide how often you will count inventory. ...
  • Draft the List of Inventory Items to Count: This draft list should include stock quantities.
Aug 25, 2020

How often should you do a physical inventory count? ›

When should you perform a physical inventory count? When and how frequently you perform a full stock take varies from one store to another. Some stores limit full physical inventory counts to once a year, others do them bi-annually, while others conduct them at frequent intervals.

What are at least 3 reasons to take a physical inventory? ›

Here are a few more reasons why performing a physical inventory count is so important:
  • Taxes. An annual physical inventory count is usually required for tax purposes. ...
  • Shrinkage control. Physical inventory counts help you identify shrinkage problems. ...
  • Informed decision making. ...
  • Efficiency.
Jan 7, 2015

How do you complete a list of inventory? ›

In general, an inventory list should include the product's name, SKU number, description, pricing, and quantity. Inventory lists help brands manage and monitor their stock levels, allowing for greater inventory control and a more streamlined approach to inventory management.

What is the best way to count inventory? ›

Cycle Counting

It's a method where you take counts of different areas of your inventory spread out over the course of the year. And the best part, it actually makes your inventory more accurate because you are paying attention to specific areas more often, rather than everything as a whole.

What are the 4 techniques used in a physical exam quizlet? ›

Physical examination requires the sequential use of what four assessment techniques? inspection, palpation, percussion, and auscultation.

What are physical counts? ›

Physical counts are a way to verify that the inventory system and the actual stock are in agreement. Physical inventory counts involve physically counting the number of items in stock, and comparing that number with the number that is in the inventory management system.

What are the steps to complete a physical assessment quizlet? ›

  1. Preform hand hygiene.
  2. Identify patient with two identifiers.
  3. Complete general survey.
  4. Establish airway, breathing and circulation, (ABC).
  5. Establish level of consciousness, (LOC).
  6. Assess orientation to person, place, time and situation.
  7. Check pupils (PERRLA).

What is the golden rule for inventory? ›

Count free – Poorly arranged inventory and spares inside the warehouse is bound to result in messy storage and pathetic accountability. This will further result in wastage of time and incur extra work. Hence, inventory should be neatly arranged and should be made visible and count free.

What is the 80/20 inventory rule? ›

What Is the 80/20 Inventory Management Rule? The 80/20 rule states that 80% of results come from 20% of efforts, customers or another unit of measurement. When applied to inventory, the rule suggests that companies earn roughly 80% of their profits from 20% of their products.

Is physical count of inventory required under GAAP? ›

Is taking physical count of inventory required under GAAP? Generally Accepted Accounting Principles (GAAP) as well as International Financial Reporting Standards (IFRS) require companies with physical inventory to conduct an inventory count.

What are the 4 basic reasons for keeping an inventory? ›

Four very good reasons to hold inventory
  • Expecting the unexpected. By far the greatest adversary any inventory manager is expected to overcome is fluctuating consumer demand. ...
  • A time to buy and a time to buy more inventory. ...
  • Capitalizing on low cost offers. ...
  • Putting on bottom-line body armor.
Oct 19, 2015

What are the 3 key measures of inventory? ›

We've put together a list of four crucial metrics that you should keep a close eye on over the course of the year: inventory turnover, average days to sell, return on investment, and inventory carrying costs.

How do you prepare for a physical inventory? ›

How to Prepare Your Inventory for a Physical Count - Part 1
  1. 1 - Organize your parts. ...
  2. 2 - Identify countable and uncountable parts. ...
  3. 3 - Designate counting areas. ...
  4. 4 – Check your negative on hand counts. ...
  5. 5 – Check for parts with no cost. ...
  6. 6 – Delete any incorrect Bin Locations from the system.
Feb 28, 2019

What does an inventory checklist look like? ›

An inventory list is a complete, itemized list of every product your business has in stock. This includes your raw materials, work-in-progress, and finished goods. An inventory list should include each item's SKU number, name, description, cost, and quantity in stock.

What are the 5 steps to effective inventory systems your answer? ›

5 Steps to Successful Inventory Management
  • Create a System to Get Accurate and Accessible Information on Your Inventory. ...
  • Create a Unique Process Customized for Your Business Type. ...
  • Keep an eye on Contemporary trends in the industry. ...
  • Be prepared for fluctuations in supply and demand.
Sep 29, 2021

What are the 4 main steps in inventory management? ›

A good inventory management process means you can easily identify what stock you have on hand and the value of it.
Manage your inventory
  • Assess your inventory.
  • Review your last inventory stocktake.
  • Analyse sales.
  • Identify items to repurchase or retire.
Sep 2, 2021

What is the simplest way to manage inventory? ›

Here are some of the techniques that many small businesses use to manage inventory:
  • Fine-tune your forecasting. ...
  • Use the FIFO approach (first in, first out). ...
  • Identify low-turn stock. ...
  • Audit your stock. ...
  • Use cloud-based inventory management software. ...
  • Track your stock levels at all times. ...
  • Reduce equipment repair times.
Jan 28, 2023

What is the most common inventory method? ›

First-In, First-Out (FIFO)

The FIFO valuation method is the most commonly used inventory valuation method as most of the companies sell their products in the same order in which they purchase it.

What is the physical inventory count used to determine? ›

The Accounting Act (act no. 563/1991 Coll., article 29 and further) tells us inventory count is used to identify the actual condition of all assets and liabilities and to verify, if the identified condition corresponds to the condition of assets and liabilities stated in the accounting.

What are the 4 techniques used in a physical exam? ›

A physical examination usually includes:
  • Inspection (looking at the body)
  • Palpation (feeling the body with fingers or hands)
  • Auscultation (listening to sounds)
  • Percussion (producing sounds, usually by tapping on specific areas of the body)
Jan 16, 2021

What is the correct order of the 4 techniques for physical assessment? ›

WHEN YOU PERFORM a physical assessment, you'll use four techniques: inspection, palpation, percussion, and auscultation. Use them in sequence—unless you're performing an abdominal assessment. Palpation and percussion can alter bowel sounds, so you'd inspect, auscultate, percuss, then palpate an abdomen.

What are the 6 components of a physical exam? ›

The components of a physical exam include:
  • Inspection. Your examiner will look at, or "inspect" specific areas of your body for normal color, shape and consistency. ...
  • Palpation. ...
  • Percussion. ...
  • Auscultation. ...
  • The Neurologic Examination:

What is the objective of physical count? ›

The objective of the Physical Count of Inventory is to compare what is recorded in the accounting books with what is physically and physically in the company. And then the necessary adjustments are recorded. This is until there is a match between the account balances with what is in reality.

What is physical count and cycle count? ›

With cycle counting, a company continuously counts small samples of its inventory throughout the year. Cycle counting contrasts with physical inventory counting, which typically involves counting the company's entire inventory quarterly or annually.

What is a physical inventory usually taken? ›

When Is a Physical Inventory Usually Taken? A physical inventory count is usually taken both when goods are not being sold or received and at the end of the company's fiscal year. You can, of course, take it more often to ensure greater accuracy.

What are the 3 components of a complete physical examination? ›

A physical examination usually includes:
  • Inspection. In medical terms, “inspection” means to look at the person or body part. ...
  • Palpation. Palpation is a method of feeling with the fingers or hands during a physical examination. ...
  • Auscultation. ...
  • Percussion.

What should be included in a complete physical exam? ›

Elements of a Physical Exam

It measures important vital signs -- temperature, blood pressure, and heart rate -- and evaluates your body using observation, palpitation, percussion, and auscultation. Observation includes using instruments to look into your eyes, ears, nose, and throat.

What are 3 components of the physical exam portion of physicals? ›

During the physical exam, the doctor will usually: record your height and weight. check your blood pressure and pulse (heart rate and rhythm) test your vision.

What are the top three to five principles of inventory management? ›

There five key principles of inventory management:
  • demand forecasting,
  • warehouse flow,
  • inventory turns/stock rotation,
  • cycle counting and.
  • process auditing.

What is the rule of thumb for inventory management? ›

As a rule of thumb, it is recommended that you apply the 50% rule, which states that you should have an additional 50% of stock on top of your lead-time demand. Lead-time demand is essentially your lead time multiplied by average daily sales. Based on this calculation, safety stock levels at 50% would be 156 units.

What is the first rule of inventory management? ›

Rules of Inventory #1: Have Enough Inventory to Service Demand. In the past, when inventory ran out, companies would simply issue a backorder while they purchased or manufactured more items. Customers would simply wait for the item to be in stock again.

What is the best inventory ratio? ›

For most industries, the ideal inventory turnover ratio will be between 5 and 10, meaning the company will sell and restock inventory roughly every one to two months.

How much inventory should be sold off? ›

Since the recommended range for the inventory to sales ratio is ⅙ to ¼, it is possible for the inventory sales ratio to be too low or too high. A value greater than this range indicates poor sales, whereas a value below this range may indicate that you are selling your stock too quickly to keep up with customer demand.

What is a good inventory percentage? ›

What Is a Good Inventory Turnover Ratio? A good inventory turnover ratio is between 5 and 10 for most industries, which indicates that you sell and restock your inventory every 1-2 months. This ratio strikes a good balance between having enough inventory on hand and not having to reorder too frequently.

What is the rule of inventory? ›

The 80/20 inventory rule states that 80% of your profits should come from 20% of your inventory. The rule is based on the Pareto Principle, a management consulting principle that suggests that 80% of effects come from 20% of causes.

Is a physical inventory required? ›

Physical inventory count is a necessary step in inventory management because it reconciles the actual stocks in storage with the inventory count on the system.

What are the 6 steps in conducting an inventory? ›

  • Understand and characterize your demand. Inventory shortages or excess is the result of supply being out of sync with demand. ...
  • Characterize your supply and inventory costs. ...
  • Stratify your inventory. ...
  • Establish goals for each category and measure.
  • Develop a process to track and.
  • Refine goals and adjust processes.

What are the 4 challenges of inventory planning? ›

5 inventory planning challenges and how you can solve them
  • Inaccurate inventory tracking. Small businesses often start out with a manual tracking system for inventory control. ...
  • Inefficient processes. ...
  • Poor inventory control. ...
  • Supply chain complexity. ...
  • Coping with demand fluctuations.
Jul 26, 2021

How do you avoid running out of inventory? ›

18 Ways to Prevent Stockouts
  1. Increase inventory accuracy. ...
  2. Enforce a regular cycle counting practice. ...
  3. Set reorder points. ...
  4. Determine lead times. ...
  5. Improve forecasting capabilities. ...
  6. Utilize demand planning. ...
  7. Keep safety stock. ...
  8. Use automated inventory management software.
Jun 1, 2022

What are the 4 performance measures? ›

Financial, Customer, Internal Business Process, and Learning and Growth.

What are the five elements of inventory management? ›

5 Key Elements of Inventory Management
  • Track your activity. As a business owner, you ought to know about any movement in your stock. ...
  • Daily counts. Managing your inventory is a daily inventory management task. ...
  • Manage out-of-stock products. ...
  • Clear description. ...
  • Organized work environment.
Sep 21, 2016

What is a physical inventory worksheet? ›

A Physical Inventory Worksheet is a tool to maintain accurate inventory records by comparing your physical inventory count to inventory counts in your account. This report lists all on-hand inventory. For each item, it shows the name, description, preferred vendor and quantity on hand.

What are steps of physical inventory? ›

How to Take Physical Inventory in 12 Steps
  • Save the date. ...
  • Assign your counters. ...
  • Inform all storage locations. ...
  • Review your stock. ...
  • Lay out the land. ...
  • Create your categories. ...
  • Initiate a pre-count. ...
  • A few reminders.
May 21, 2021

What does attendance at physical inventory counting involve? ›

Part A: Attendance at Physical Inventory Counting

Management ordinarily establishes procedures under which inventory is physically counted at least once a year to serve as a basis for the preparation of the financial statements or to ascertain the reliability of the perpetual inventory system.

What options do you have after entering a physical inventory count for a raw material? ›

Q 2. What options do you have after entering a physical inventory count for a raw material? A. You can initiate a recount.

What is the importance of physical count? ›

Even if you work with a good inventory management system, you are actually selling physical products and not data in your inventory reporting tool. Physical inventory count allows you to make sure your data matches your potential sales, so you won't be miscalculating when you work on your prospective sales target.

Why is it important to attend a physical inventory count? ›

A6. Inspecting inventory when attending physical inventory counting assists the auditor in ascertaining the existence of the inventory (though not necessarily its ownership), and in identifying, for example, obsolete, damaged or ageing inventory.

Is physical count of inventory optional? ›

According to the IRS and generally accepted accounting principles (“GAAP”), companies with physical inventory are required to, periodically, conduct an inventory count. There are two main methods by which a company can accomplish this goal: an annual physical inventory count, or periodic inventory cycle counting.

How do I count my cycles? ›

The Frequency of Cycle Counting Methods

Count "A" items most frequently, followed by "B" items, and then count "C" items the least often. Assume that the number of counts will decrease over time as the inventory records get more accurate. You will still maintain the proportion of counts between A, B and C items.

How often should cycle counts be completed? ›

As a baseline, we recommend conducting a cycle count every 12-13 weeks, roughly every quarter. This will help to catch problems before they develop into more significant issues. The minimum number of counts you should do is one per year, but only if you have a small amount of inventory to manage.

What are the examples of physical inventory? ›

Types Of Physical Inventory : Periodic inventory. Continuous inventory. Cycle counting.

What does physical inventory consist of? ›

Physical inventory is an actual count of the goods in stock. This can involve counting, weighing, and otherwise measuring items, as well as asking third parties for counts of inventory items that have been consigned to them.

What is physical inventory process? ›

Physical inventory is a process of determining that the inventory quantities are exact, or if there are differences in quantity mentioned physically present and that mentioned in the SAP system. Basically, after you are finished with physical inventory, your system and physical stock levels must be the same.


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