Question

Do you think a cycle count should be done to verify the perpetual inventory? Explain

Answer 1

Yes, a cycle count must be done to verify the perpetual inventory to up-keep the accuracy of inventory records. Please note that cycle count is a process of inventory auditing by means of taking physical verification of stock, whereas the perpetual system automatically updates the inventory records upon its consumption or sale.

Organizations using perpetual system employs cycle counting to maintain the true and fair records of inventory. Cycle counting includes a portion of company's inventory on day to day basis and compares the quantity against the inventory records. This process investigates discrepancies in the inventory records and discovers the cause of incorrect quantities. Cycle counting in perpetual system also includes an adjustment of inventory records to update and accurately reflect the physical count. In other words, cycle counting corrects inventory records and identifies problems in the inventory management system.

Example: In a manufacturing concern, work orders shall deduct materials from system based on a bill of material issued. It may so happen that bill of material does not pull correct quantity of raw materials consumed from the inventory system, each time a unit is manufactured, and the quantity in the system becomes inaccurate. In such situation where inventory records are maintained in perpetual system, a cycle count will identify the problem and correct the bill of material to deduct the correct quantities from the inventory records.

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