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Inventory Reconciliation — Everything You Should Know

Inventory reconciliation allows companies to know the difference in their stocks between their records and in their warehouses. However, what is it?

For this article, we will talk about what inventory reconciliation is. We will discuss its importance and the steps for you to be able to reconcile your inventory effectively.

Once you are done reading this article, you will be able to have a deeper knowledge of reconciling inventory. Additionally, you will be able to use the steps we will discuss to improve your inventory management. So without further ado, let us now start!

Inventory Reconciliation:What is it? 

Inventory reconciliation is the process of comparing the physical inventory of a product or asset to the recorded inventory in a company’s accounting system.

This is done to identify any discrepancies or errors between the two and to ensure that the recorded inventory is accurate.

Additionally, it is a way for a company to make sure that the amount of inventory they think they have matched up with the amount they actually have in stock.

By doing this regularly, a company can ensure that they have the correct information to make informed business decisions and avoid issues like stock-outs or overstocking.

Furthermore, It is essential to frequently check and compare the actual inventory with the recorded inventory to make sure that everything is included. This way, you can be sure that you know how much inventory you have at any given time.

Whyis it Important?

One of the main reasons why inventory reconciliation is important is that it helps businesses avoid overstocking or stockouts.

Overstocking means having too much inventory, which ties up capital that could be used elsewhere and increases the risk of spoilage or obsolescence.

On the other hand, stockouts occur when a business runs out of inventory, which can result in lost sales, unsatisfied customers, and damage to the business’s reputation.

By reconciling inventory regularly, businesses can make sure that they have the right amount of inventory to meet demand, without having excess or shortage.

Another reason why inventory reconciliation is important is that it can help businesses improve their financial reporting.

Accurate and timely inventory tracking is essential for generating accurate financial statements. By reconciling inventory regularly, businesses can identify and correct errors in their inventory management system, which can lead to more accurate financial reports. This, in turn, can help businesses make better-informed decisions based on actual data.

Furthermore, inventory reconciliation can help businesses improve their customer service. By reconciling inventory regularly, businesses can ensure that they have the products customers want in stock, which can lead to increased customer satisfaction and loyalty.

This is especially important in today’s competitive market, where customers have high expectations when it comes to availability and speed of delivery.


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Steps to ReconcileYour Inventory

1. Count your physical inventory

First, you need to check the physical products you have on your shelves to get the correct inventory count. Spend some time counting all the items you have in stock.

It is important to do this because mistakes can happen in recording inventory, and you may have inventory stored in different locations. Make sure to count the inventory with your team to get the most accurate numbers before moving forward.

Here are some common methodologies that you can use to conduct your physical inventory:

  • Full Count Inventory

In this approach, Your team or an outside inventory company will come to your facility and physically count every item in your inventory using pencil and paper, barcode scanners, or RFID technology.

This approach provides an accurate and up-to-date record of all your stock items. However, it requires shutting down operations, which can be costly, and there is a risk of errors due to the large volume of items being counted.

  • Cycle Counts

In this approach, you must count specific items or areas of your inventory daily, making it less stressful and easier to manage.

It will not disrupt your business operations, and there is a lower chance of errors since you are counting in smaller sections.

However, this method takes time to cover your entire inventory, and discrepancies can occur over time.

To ensure accuracy, companies will conduct a full inventory count occasionally. The first step in inventory reconciliation is knowing the actual amount of products you have and counting them will provide this information.

2. Check your records

To ensure accuracy in inventory reconciliation, make sure your inventory records and control systems are updated with current sales and invoices.

Check the stock and serial numbers of each item listed in your records and compare them with your actual inventory.

Items without any stock or serial numbers should also be compared with your inventory-on-hand numbers and supplier invoices. Most companies check and verify these records multiple times to ensure accuracy.

3. Identify the discrepancies

During inventory reconciliation, discrepancies may be found. If errors were made by humans or in math, they can be corrected.

However, if not, sales records should be checked to find any inaccuracies. If sales receipts are missing, there may be lost or misplaced items, or there could be a possibility of theft or fraud.

4. Chase down the discrepancies

You need to decide what level of loss is acceptable in your business. Sometimes, it is not worth the time and cost to find out what caused the loss, especially if it involves low-value items.

However, if you want to investigate the cause, you can interview employees responsible for each step of the process. In some cases, you may not find an answer for the discrepancy. It is important to resolve as many issues as possible, but not to drag out the process until the next inventory count.

5. Reconcile your inventory records

It is necessary to have an accurate inventory count, even if some discrepancies cannot be explained. Adjust your inventory record to match the physical count and take note of any changes.

Although you should try to resolve all discrepancies, there may be instances where you cannot. In those cases, it is time to reconcile and move forward, but do not forget about the discrepancies for future inventory counts.

6. Compare your results to previous inventory reconciliations

After finishing your inventory reconciliation, it is a good idea to compare it to previous ones to see if there are any trends or patterns.

This can help you identify areas that need more attention. It is especially helpful if you have unresolved issues because it allows you to focus on those specific items, which can prevent future issues or help you figure out what is causing the problem.

Frequentlyasked questions

+ What is Inventory Reconciliation?

It is the process of comparing the physical inventory of a product or asset to the recorded inventory in a company’s accounting system. 

+ Why is it important?

It is important because it helps businesses avoid overstocking or stockouts. 

+ How can businesses improve their inventory reconciliation process?

Businesses can improve their inventory reconciliation process by implementing better inventory management practices, using inventory management software, training employees on proper inventory procedures, and conducting regular audits to identify and address any issues.

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