Question

Why must a merchandising company (retail company) perform a physical inventory at least once a year? Why is it beneficial to them to perform a physical inventory more than once a year?

Answer 1

The number of units company have in records may differ from the actual number of units in inventory. Physical inventory reconciliation ensures highlighting such errors by checking record against actual stock.

Physical inventory count is so important because of following reasons -

Taxes- Annual physical inventory count is needed for tax purposes. Company may also record their losses to reduce tax burden.

Shrinkage control- Physical inventory counts ensures identification of shrinkage problems. Units may be missing for reasons such as loss, damage, and theft.

Informed decision making- Physical inventory count when done accurately ensures informed decisions by management when working with wholesalers and vendors.

Efficiency- Accurate inventory management system helps in saving time and serving customers better. Instead of checking the stock room to ensure availability of any product, staff can trust system's inventory data and efficiently focus on serving the client.

It is beneficial to the company to perform a physical inventory more than once a year because by checking stock periodically, there will be surity of inventory matching with what is in records. Moreover, company will also be able to identify if any problems are their in record keeping procedures.