What procedure should be used to conduct a physical inventory count and reconcile discrepancies with book values?

What procedure should be used to conduct a physical inventory count and reconcile discrepancies with book values?

• A. Full or cycle counts; adjust records; investigate variances; document adjustments; adjust COGS
• B. Perform only annual counts; ignore variances
• C. Count only by item and never adjust COGS
• D. Use automated counts without verification

Answer: (A)

The main idea is to verify what's on the shelf against what's in the records and handle any differences properly. Conducting physical counts using either a full count or ongoing cycle counts keeps inventory data accurate in real time. After counting, you must adjust the records to match the actual quantities found, then investigate any variances to determine causes such as spoilage, shrinkage, miscounts, or data entry errors, and document the adjustments made. Finally, you adjust the cost of goods sold to reflect the corrected inventory, so financial reports show the true cost of the goods used. This approach maintains accurate stock balances, supports better purchasing and menu costing, and helps control losses. If you skip variances, rely only on annual checks, or count without updating records and COGS, discrepancies will persist and financials won’t reflect reality. Automated counts without verification can miss errors, so verification and documentation are essential.

The main idea is to verify what's on the shelf against what's in the records and handle any differences properly. Conducting physical counts using either a full count or ongoing cycle counts keeps inventory data accurate in real time. After counting, you must adjust the records to match the actual quantities found, then investigate any variances to determine causes such as spoilage, shrinkage, miscounts, or data entry errors, and document the adjustments made. Finally, you adjust the cost of goods sold to reflect the corrected inventory, so financial reports show the true cost of the goods used. This approach maintains accurate stock balances, supports better purchasing and menu costing, and helps control losses. If you skip variances, rely only on annual checks, or count without updating records and COGS, discrepancies will persist and financials won’t reflect reality. Automated counts without verification can miss errors, so verification and documentation are essential.