The shelf contains fewer units than the system reports. Before recording a shortage, check whether an issue occurred before or after the report was extracted, and whether the count uses pieces while the stock record uses cartons. Some differences are physical; others arise from mismatched comparisons. Reconciliation first establishes that count and record describe the same time, unit and location. It then investigates the cause and financial effect, making counting a way to understand movements rather than a monthly exercise in clearing differences.
Establish a common point of comparison
Specify the warehouse, location, item, unit of measure and reference time. If sales continue during the count, separate or trace subsequent movements so they are not counted twice. Check similar item names, packs containing multiple pieces and goods still in the receiving area. Those details can explain a difference before any accounting adjustment is considered.
Prepare a count record showing the item, location, unit and person performing the count. Material differences benefit from an independent recount without steering the counter toward an expected number. The first objective is to establish what physically exists. Book quantities then support a check that receipts, issues, returns and transfers are complete for the relevant period.
One item with an assumed unit cost
Suppose the record shows 120 pieces while the first count finds 113. A recount confirms 113. Document review identifies an approved issue of three pieces that was never recorded. Posting the correct movement changes the book quantity to 117, leaving four pieces requiring investigation and approval before treatment. Assume a constant carrying cost of SAR 50 per piece for this simplified calculation.
| Review step | Quantity | Value at assumed cost |
|---|---|---|
| Balance before review | 120 pieces | SAR 6,000 |
| Documented unrecorded issue | 3 pieces | SAR 150 |
| Balance after recording the issue | 117 pieces | SAR 5,850 |
| Confirmed physical quantity | 113 pieces | SAR 5,650 |
| Remaining difference to investigate | 4 pieces | SAR 200 |
The original difference was seven pieces, but part of it was a recording omission. Treating all seven as a physical loss would mix an evidenced issue with an unexplained shortage. The remaining four are not automatically written off: a transfer, unit error or another document may explain them. Retain the result of each review step before approving the final action.
These are teaching figures. The SAR 50 unit cost is a simplifying assumption. Actual values follow the approved costing policy and item records, rather than the selling price charged to a customer.
Checks before an adjustment
- Confirm that a material difference was recounted and identify the reviewer and date.
- Match piece and pack units and review the conversion between them.
- Examine receipts, issues, returns and transfers close to the count time.
- Look for duplicate or missing movements and locations omitted from the count.
- Document the cause and evidence, identifying any unresolved investigation.
- Obtain approval from the responsible person and review the resulting balance.
Separate quantity from value
Quantities can agree while valuation still needs attention, particularly for damaged or slow-moving items. The IFRS Foundation's IAS 2 overview explains measurement at the lower of cost and net realisable value within the standard's scope. A successful count therefore does not, on its own, settle valuation. Reviewing condition and saleability is distinct from establishing the quantity present.
Do not offset an excess of one item against a shortage of another simply because their values look similar. Investigate an incorrect item code or unit conversion, then correct the evidenced cause. Goods might also belong to another party or be held at an external location. Counting scope needs to address ownership as well as location; presence in your warehouse does not automatically establish ownership.
Prevent the same cause next time
After reconciliation, classify causes such as delayed recording, incorrect codes, unit problems, damage or unresolved differences. Start with a few useful measures: repeat-variance items, approved adjustment value and time taken to close investigations. If the problem is concentrated in receiving, better count training alone will not resolve it. Review the receiving procedure and the documents used by the team.
Plan periodic counts according to item value, movement and storage sensitivity. Compare reviews using consistent definitions and scope. During a Wali ERP inventory discussion, use this scenario to connect the item, its movements and warehouse with the relevant report. Clarify who records, reviews and approves. That makes evaluation of the system about an identifiable operating problem whose improvement can be followed over time.
Sources & further reading
Visit the original source to explore the concept and its wider context.
General educational content. Appropriate treatment depends on your business and accounting policies; consult your accounting professional when applying it to business records.
