Year-End Physical Inventory

Each department with an inventory is required to take a physical count at least once a year to ensure an accurate asset value is reported on the balance sheet and that cost of goods sold is recorded correctly on the income statement.

This annual count should be completed within the three months prior to fiscal year-end close (June 30). Each department’s responsible person needs to schedule the actual count, establish cutoff procedures, and supervise the physical inventory process.

Cutoff procedures are designed to ensure that inventory transactions are properly recorded and included in the current year financial statements. Inventory quantities include all items on hand and possibly those in transit. Include in-transit inventory items only if ¶¶ÒõÂÃÐÐÉä owns the goods, whether or not we have received them. In general, inventory items received but not paid are included in the physical inventory. Similarly, inventory items shipped to customers are deducted from the physical inventory when ¶¶ÒõÂÃÐÐÉä no longer owns the goods. The responsible person must also review the inventory adjustments and amounts that will appear on the fiscal year-end Balance Sheet.

The employee responsible for the departmental inventory must complete the following:

  1. Physical Inventory Summary Report (Exhibit 1 provides an example and Exhibit 2 is a master form).
  2. Physical Inventory Test Count (Exhibit 3, which serves as supporting documentation to the Physical Inventory Summary Report).
  3. Inventory Reconciliation (Exhibit 4 provides an example and Exhibit 5 is a master form).
  4. Written departmental physical inventory instructions.
  5. One copy of the final physical inventory listing extended value.
  6. One copy of the adjusting journal entry.

This documentation shall be retained by the department in accordance with the and the . 

CCO may contact the department and conduct a review of the above-listed documentation. In addition, the above documentation must be made available to the internal or external auditors upon request.