Question

What are the main steps of a physical inventory. What are the major risks associated with performing a physical inventory?

Answer 1

Physical inventory is a process of counting the inventory physically and comparing the results with the book inventory. It is a legal requirement to carry out the physical inventory once in a year.

The main steps involved in a physical inventory are:

1) Creation of a physical inventory document - The transaction code for creating an individual inventory document is MI01

2) Print physical inventory document - Transaction code MI21 is used to print the inventory document.

3) Count the physical sotck - the warehouse person will count the stock of material physically based on the printed physical inventory document and will note down the count on the printed sheet.

4) Enter count in the system - based on the physical count, the count number is entered in the system

5) Analyze the difference - once the count has been entered, the difference of the book inventory and the physical count inventory can be carried out using transaction code MI20

6) Initiate recount - if the above difference is unacceptable, then a recount is initiated and steps 3,4, and 5 are performed again.

7) Post the difference - after a recount is completed, the final diffrence is posted in the software.

The major risk associated with performing a physical inventory relates to counting the fast moving and volume items.