How to Conduct a Stock Inventory

The report shows 120 units of a product, but the warehouse holds 114. Were the missing six units sold, moved to another shelf, given out without documents, or simply recorded incorrectly?

The purpose of an inventory is not only to find missing products. It helps you compare the actual balance in the warehouse with the system data, determine the reason for any discrepancy, and correct the process so that the same mistake does not happen again.

What is inventory?

Inventory is the process of counting, weighing, or measuring the products actually held in the company's warehouse and comparing the result with the accounting and stock records.

A properly conducted inventory answers the following questions:

• how many of each product are in stock;

• whether the balance in the system matches the actual balance;

• which products have a shortage or surplus;

• how many products are expired or damaged;

• in which process the discrepancy occurred.

According to the current National Accounting Standard of Uzbekistan No. 19, property is inventoried by its location and materially responsible person. Stock should be inventoried at least once a year, and food products quarterly.

When should an inventory be conducted?

A year-end inventory alone may not be enough for warehouse control. When an error that has built up over a year is detected late, its cause becomes difficult to find.

An inventory must be carried out in the following cases:

• before preparing the annual financial report;

• when the materially responsible person changes;

• when theft, abuse, or product damage is detected;

• after emergencies;

• when the warehouse is handed over to another employee;

• when the system balance and the actual balance regularly fail to match;

• before migrating to a new warehouse system.

When the materially responsible person changes, the inventory is carried out on the day the responsibilities are handed over. In high-traffic warehouses, it is useful to run a selective or periodic inventory rather than limiting yourself to a single full count once a year. The counting interval can be shortened as product movement increases, because more inflow and outflow raises the potential for error.

How to prepare for an inventory?

The accuracy of an inventory depends on the preparation done before counting starts. In a cluttered warehouse, it is easy to double-count products, forget certain boxes, or record them under different SKUs.

A SKU is a unit of account assigned to each individual product type, size, flavor, or package in stock.

Specify the date and time of the inventory

It is best to choose a time when product movement is at its lowest — for example, after the end of the business day or on a day when no orders are shipped.

The order must specify:

• the inventory start date;

• the inventory end date;

• the warehouses to be checked;

• the composition of the commission;

• the reason for the inventory;

• the responsible personnel.

The current standard specifies that the start and end dates of the inventory are set by an executive order.

Create an inventory commission

It is not right to entrust the inventory to the warehouse keeper alone. The keeper can explain where products are located and take part in the count, but the result must be checked independently.

The inventory commission usually includes:

• the manager or a representative;

• an accounting officer;

• a warehouse process expert;

• an internal audit or control officer, where applicable.

According to the current National Accounting Standard No. 19, the permanent commission includes the head of the organization or a deputy and the head of the accounting service. If the volume of work is large, separate working commissions can be formed. If one of the commission members does not take part, this can be grounds for declaring the inventory results invalid.

Complete all incoming and outgoing documents

There should be no products that arrived at the warehouse before the inventory but were not entered into the system. The documents for products released from the warehouse must also be finalized.

The materially responsible person confirms that all incoming and outgoing documents have been submitted, that incoming products have been received, and that issued products have been written off before the inventory begins.

Prepare the warehouse for counting

Before the inventory, products should be:

• sorted by category and SKU;

• grouped so that identical products are in one area;

• separated into open and closed boxes;

• set aside when damaged;

• marked separately when returned;

• kept out of the sales balance when expired;

• assigned to numbered shelves and storage areas.

The official requirement is that products be arranged in an easy-to-count order by name, type, and size.

Step-by-step inventory

1. Temporarily stop operations in the warehouse

If items keep arriving or being issued during the count, the result quickly becomes outdated. Set a clear cut-off time for the system balance before the inventory starts.

For example, all arrivals and departures after 20:00 on July 24 are entered into a new period.

If the inventory takes a long time and products must still be released, that action must be documented separately. According to the standard, products received and issued during the inventory are recorded on a separate list.

2. Set the counting direction

Commissions should not interfere with one another's areas. Divide the warehouse into clear zones:

• the receiving area;

• the main storage shelves;

• the order picking area;

• the returns area;

• the damaged goods area;

• the temporary storage areas.

It is convenient to start counting from one end of the warehouse and continue in a set direction, marking each numbered shelf or row.

This method reduces the risk of double-counting products or leaving an entire area unchecked.

3. Count the product in practice

Copying a ready figure from the system into the inventory list and confirming it does not count as an inventory.

Each product must be:

• counted by quantity;

• weighed where relevant;

• measured by size;

• checked for packaging and box contents.

The current standard requires the actual balance to be established by mandatory counting, weighing, or measuring in the presence of the materially responsible person. Entering accounting figures into the list without actually checking the product is not allowed.

4. Enter the information for each SKU

The inventory list must contain at least the following information:

• the product name;

• the SKU or nomenclature number;

• the article or barcode;

• the unit of measurement;

• the lot number;

• the expiration date;

• the storage location;

• the current quantity;

• the personnel who performed the count.

The official inventory list must show the product nomenclature number, type, group, article, and quantity for each item.

5. Check the expiration date and product status

Finding 500 units of the same product does not mean the entire stock is ready for sale.

When counting, separate products into at least the following categories:

• ready for sale;

• close to the expiration date;

• expired;

• damaged packaging;

• returned;

• not for sale;

• belonging to another company.

Products that belong to another organization or are held in safekeeping are not added to the company's own balance. A separate inventory list should be made for them.

6. Recalculate suspicious variances

Do not rush to conclude that there is a shortage when a large variance is found for a single SKU.

First check the following:

• the product has not been placed on another shelf;

• the same product has not been opened under a different code;

• the units of measurement for boxes and pieces have not been mixed up;

• a returned product has not yet been delivered;

• a product prepared for delivery has not been removed from the warehouse;

• an incoming or outgoing document is not delayed.

Wherever possible, the recount should be carried out by staff who did not take part in the first count.

7. Compare the result with the balance in the system

When the count is complete, the actual balance is compared with the system balance at the SKU level.

Inventory variance = actual balance − system balance

For example:

• system balance: 240 units;

• actual balance: 232 units;

• variance: −8 units.

A negative result indicates a shortage, and a positive result indicates a surplus.

An official reconciliation record is created for the products where a discrepancy between the inventory list and the accounting data is found.

How to determine the causes of shortages and surpluses?

The most important step in an inventory is not just correcting the discrepancy in the system, but determining its cause.

Common causes of shortages

• the product was released without documentation;

• an order was written off twice;

• a returned product was not delivered to the warehouse;

• boxes and units were counted incorrectly;

• the product was sold under a different SKU code;

• damaged goods were destroyed without documentation;

• the product was moved to another warehouse but not reflected in the system;

• an error occurred during picking or delivery;

• unauthorized removal took place.

Common causes of surplus

• the quantity of the delivered product was recorded incorrectly;

• the product was over-issued from the system;

• a sale was canceled but the balance was not restored;

• a returned product was not delivered;

• one product is stored under two different codes;

• the packaging unit of measurement is set incorrectly.

For each variance, record the cause, the responsible process, and the corrective action. Simply noting "system balance corrected" does not solve the problem.

How to formalize inventory results?

At the end of the inventory, the following documents are prepared:

• the inventory order;

• the inventory list;

• confirmation from the materially responsible person;

• the reconciliation record;

• explanations of the causes of shortages and surpluses;

• the manager's final decision;

• information on the adjustments made to the accounts.

Inventory lists can be created on paper or in an information system. They are signed by all members of the commission and the materially responsible person. Surplus products should be brought to account, and the causes and responsible persons should be identified for shortages and violations. The results are reflected in the accounts and report of the month in which the inventory is completed.

What indicators should be monitored after the inventory?

It is not enough for the manager to see only the total amount of the shortage. Indicators are needed to show where and why the problem occurred.

Stock accuracy

Stock accuracy = matched SKUs ÷ SKUs checked × 100%

For example, if 930 of 1,000 SKUs match between the system and actual stock, stock accuracy is 93%.

This is an internal calculation that a company can use for its own control.

Variance value

Shortages and surpluses should be viewed not only in units, but also in monetary value.

Otherwise, the impact of 100 cheap products and five expensive products on the company will look the same.

Recurring errors

Track which SKU, warehouse, employee, or operation the discrepancy keeps recurring in.

For example, if most balance differences occur in return operations, it is the return process that should be fixed, not the entire warehouse.

Unaccounted product movements

The following operations are monitored separately:

• undocumented receipts;

• undocumented issues;

• documents entered late;

• canceled orders;

• transfers between warehouses;

• returns;

• write-offs.

Difference between a full inventory and periodic counting

In a full inventory, all products in the warehouse are counted at the same time. This method may be necessary at the end of the year, when the materially responsible person changes, or when switching to a new system.

In periodic counting, a certain group of products is checked regularly. For example:

• fast-moving items — weekly;

• expensive products — weekly or monthly;

• average-moving products — monthly;

• slow-moving products — quarterly.

This schedule does not replace the mandatory formal inventory. It is an internal control tool for catching warehouse errors without waiting until the end of the year.

The applicable standard also allows for selective checks of stock in storage areas in the period between inventories.

Common errors in inventory

Giving the system balance to the counting team in advance

When an employee sees the expected figure, they may be inclined to confirm it rather than count independently.

It is better to establish the actual balance first and only then compare it with the system.

Failing to stop warehouse movement

Products coming in and going out during the count increase the variance. Any necessary movements must be documented separately.

Comparing only the total amount

A surplus in one product can hide a shortage in another in monetary terms. The comparison should be done at the SKU level.

Writing off a shortage without a reason

Changing the balance in the system does not remove the cause of the problem. The same discrepancy may appear again at the next inventory.

Adding a damaged product to the normal balance

If a product that is in stock but not sellable is listed as available, a sales agent may offer the customer something that cannot actually be shipped.

What does inventory automation change?

An electronic system does not count the products for you. But it can reduce the manual work involved in counting and comparing.

With a single warehouse system:

• products are identified by SKU and barcode;

• the system balance is taken automatically;

• the actual balance is entered into an electronic register;

• shortages and surpluses are compared automatically;

• transfers between warehouses are checked;

• you can view the history of receipts, issues, returns, and write-offs;

• it becomes easier to find the transaction where the discrepancy occurred.

In Sales Doctor, when warehouse, order, delivery, and return operations are managed in one system, the manager can review the inventory result together with the product movements instead of gathering them from separate tables.

The program only shows the existing error. Improving the result depends on entering product movements on time, on employee discipline, and on how internal control is organized.

The main task after the inventory

An inventory should not end with detecting a shortage. If the warehouse process is not changed based on the result, the same problem will recur at the next count.

For each major variance, write down the answer to three questions:

• In which operation did the error occur?

• Why did the system or the employee not stop the error?

• Which control will be added to prevent the error from recurring?

For example, if returned products are not being put back into the warehouse, simply increasing the balance is not enough. A person responsible for receiving, checking, and entering them into the system should be named, along with a deadline.

To understand why the inventory balance regularly fails to match, start by checking the incoming, outgoing, return, transfer, and write-off processes.

Diagnose your warehouse process with Sales Doctor specialists and determine at what stage the stock variance occurs.

FAQ

How many times a year is inventory carried out?

Inventory is carried out at least once a year. For food products, the current National Accounting Standard No. 19 requires quarterly inventory. In warehouses with high product movement, additional periodic counts can be organized for internal control.

Can the warehouse operate during inventory?

If possible, product movement should be temporarily stopped. If work cannot be stopped, products received and issued during the inventory are documented separately.

Can the inventory be carried out by the warehouse keeper alone?

No. The materially responsible person takes part in the count, but the inventory must be carried out by an approved commission.

What if the system balance and the actual balance do not match?

The product is recounted first. Then the incoming, outgoing, return, and transfer records, the packaging unit of measurement, and the product codes are checked. Once the cause of the discrepancy is determined, a reconciliation report is drawn up and the accounts are corrected based on the manager's decision.

Can the inventory be carried out electronically?

Yes. The current standard allows inventory lists and reconciliation records to be prepared with the help of information systems or on paper.