Cycle counting is a physical count of inventory at specific intervals to identify problems, maintain accuracy, and determine if processes need to be changed. It involves comparing inventory listings to physical counts and making corrections. It can be done periodically or in real-time to isolate errors and calculate taxes accurately.
Also known as cycle counting, a cycle count is the process of conducting a physical count of all items contained in an inventory at specific intervals during a fiscal or calendar year. The idea behind this type of business is to identify any problems with the inventory and make the necessary corrections to keep the overall inventory value accurate. This type of activity also helps determine whether current issuing processes are functioning properly and whether changes in ordering processes are needed in order to maintain adequate quantities of specific items in inventory.
The process of conducting a cycle count begins with evaluating the current number of each item that should be available. This is handled by comparing the amount listed in the inventory listings to what is physically present in the areas where the inventory is maintained. If there is a variation in the two figures, annotations are made on the difference. This allows you to correct the listings to reflect the physical count, a process commonly referred to as inventory reconciliation.
Many businesses use the periodic inventory method as a means of maintaining inventory records. Companies often interrupt the process, so a portion of the overall inventory is physically counted every 6-8 weeks. Larger companies may choose to conduct monthly inventories, depending on the complexity of the business. For example, textile companies often record equipment and parts maintained in an inventory under what are known as material codes; Approximately every six weeks, a select number of material codes are selected, allowing all codes to be physically counted throughout the year. Along with these periodic tallies, a comprehensive inventory is also conducted, usually at the end of the company’s fiscal year.
While a periodic inventory approach is sometimes used in lieu of maintaining real-time records of inventory entries and exits, this is not always the case. Many businesses keep constant records and use cycle counting as a means of isolating errors that may occur, such as an inability to record a disbursement from inventory. By conducting the physical count on a regular basis, you can identify the differences, possibly find the source of the problem, and make changes that will prevent those same circumstances from happening again. As an added benefit, cycle counting also allows you to accurately calculate any taxes that may apply to the total inventory value.
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