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Using inventory cycle counts

If you have a large number of items in inventory, it may be difficult to count your inventory at the end of each month or quarter. A simpler approach is to do cycle counts, counting a different set of items each week. Cycle counts allow you to keep control over your inventory without sacrificing a weekend to counting inventory.

Before you start cycle counting, you may want to have your inventory organized in areas, shelves and/or bins. It can help to have a floor plan listing all shelves. Make a copy of your floor plan and mark on it which areas or shelves will get counted each week. Each area should be counted quarterly (4 times a year).

Note: If you store an item in multiple locations, count all locations in the cycle count if you want to verify the inventory quantities in QuickBooks.

Many companies use cycle counting to inventory their best-selling items and more expensive items more frequently than other items. It may help to count inventory at the same time each week, preferably when things are slow. It is more difficult to count inventory while things are being taken out of inventory. Also, you should avoid counting inventory while goods are being received into QuickBooks. This may lead to inaccurate counts.

It can be helpful to have a freeze period before each cycle count that includes:

  • Not shipping and/or receiving goods.

  • Making sure that all goods that have been received are put away.

  • Making sure that all shipments have been entered in QuickBooks before you count.

Prior to the inventory cycle count, record all damaged goods and all goods returned to the vendor for repair or credit (non-conforming material report).

Sample cycle count process

This is a sample process for performing a weekly inventory cycle count. You can use your own established process or modify this one to fit your business needs.

To perform an inventory cycle count

  1. Print a Physical Inventory Worksheet and mark the area or shelf that will be counted.

    Do this right before you count, not the day before or hour before. If too much time passes between when you print the report and when you count the inventory, quantities might change, which could lead to an incorrect count.

  2. Count the items and compare the quantity to what is listed on your Inventory Count Sheet.

  3. If the amount is off, investigate the error before making an adjustment:

    1. Look at the item in QuickBooks to make sure nothing has changed since printing the Physical Inventory Worksheet. Go to the Lists menu, choose Item List, find the item you are having a problem with, and then select it. Click Reports at the bottom of the list and choose Quick Report. In the Date field, select This Month. Review the report to make sure nothing has happened since starting the count.

      Double-check that you counted the right item.

    2. Count the item again. Check if there is more than one location for the items.

    3. Ensure that adjustments for damaged goods and goods returned to vendor were completed before the count.

  4. After you have exhausted all possibilities for error, make an adjustment.

See also

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