If you are an inventory-based business, the IRS may require that you count
your inventory at year-end. In addition, it is important to document your
inventory count and file it for future reference.
When inventory is being counted you shouldn't have items being
received, shipped or built. If your inventory is moving, counting will be more
difficult and may not be accurate.
Depending on the size of your inventory, you may want to designate an
Inventory Count day (or half day, or days).
This is a sample year end inventory process that you can use as an example
to create your own process.
Determine the day you will be counting inventory (for example, December
Determine the last day to receive Inventory purchases (for example, December
30th). Specify a cutoff time after which no packages will be
received into QuickBooks (for example, noon on the 30th).
Determine the last day for shipping any orders out for the year (for
example, December 30th). Any orders not shipping on the last
shipping day will ship out on/after the next business day (for example, January
Notify everyone that the day before the count is scheduled (for example,
December 30th), the inventory and production areas need to get ready
for the inventory year-end count.
For example, as part of getting ready all spare parts should be returned to
inventory bins, all damaged goods need to be recorded and all
vendor RMA's need to be shipped back and
recorded in QuickBooks.
(For manufacturing businesses) Notify everyone that production will be
working on orders on the last days before the count (for example, December
29th and 30th) that have been built prior to the last day
before the count (for example, the 30th). No new orders will be
built on the day of the inventory count (for example, December
This is a sample inventory counting process that you can use as an example
to create your own process.
Divide participants into groups (for example, teams of 2).
Print blank physical
inventory worksheets from QuickBooks.
Give each team a sheet with the location to count marked at the top of the
sheet. The team will count all items at that location, recording the quantity
in the column alongside the corresponding part #.
You may want to have each location counted twice, by two different teams, to
verify the accuracy of the count.
If there are multiple locations for an item, the alternate/bulk locations
should be counted and recorded on the form for that location.
Compare the count sheets for each location and verify that they match (if
multiple teams counted each location).
For any locations where the counts do not match, have an additional team
count them again.
Add the total quantities for each item on all shelves and any alternate/bulk
Print physical inventory
worksheets from QuickBooks and compare the quantities found in the physical
inventory to the quantities in QuickBooks.
Review all items where quantities do not match and
adjust inventory as needed.
File the physical count sheets in a folder labeled "Year end cycle
count for the year ____."
Performing inventory cycle counts
Performing inventory spot