What is a Physical Count?

A physical count is an actual count of the goods in stock. This is a carefully coordinated counting process in which counting areas are segregated and count teams examine assigned inventory areas, recording their counts on count sheets. If there are any differences between the amounts counted and the amounts recorded in the inventory records, the counts are checked to make sure that they are accurate. If so, the inventory records are updated to match the counted amounts. This update will change the recorded inventory valuation as of the physical count date.

Physical Counts in a Periodic Inventory System

Physical counts are most commonly conducted by businesses that operate a periodic inventory system, where they track the purchases made during a reporting period, add these purchases to the beginning inventory, and then subtract the ending inventory (as derived from a physical count) to arrive at a cost of goods sold for the reporting period. This means that the business has an accurate inventory valuation only on the date when a physical count is conducted.

The Difference Between a Physical Count and Cycle Counting

A cycle count is a subset of a physical count, since it involves counting only a small portion of the total inventory each day. In addition, cycle counting is more concerned with discovering the reasons why specific inventory records are inaccurate, and correcting the underlying problems.