In: Accounting
Discuss why it is necessary for a governmental agency to take a
periodic physical inventory of
supplies, materials and equipment even though the agency keeps a
perpetual inventory system.
Annual Physical Inventory Count
Companies that use a perpetual system may still conduct an annual physical inventory. In the periodic inventory system, physical counts are used to determine the amount of goods sold. In the perpetual system, a year-end physical inventory validates the inventory records.Physical inventory is a process where a business physically counts its entire inventory. Companies perform a physical inventory for several reasons including to satisfy financial accounting rules or tax regulations, or to compile a list of items for restocking.Periodic counts might be once every two months or every three weeks, depending on warehouse size and company needs. This will create better visibility than yearly or seasonal options but it also requires more time and manpower. Workers must ensure they are performing inventory consistently between each count.
An annual physical inventory count is usually required for tax purposes. You can also record your losses to lessen your tax burden. Shrinkage control. Physical inventory counts help you identify shrinkage problems.Periodic and perpetual inventory systems are two contrasting accounting methods that businesses use to track the quantity of products they have available. ... Cost of goods sold is an iimportant accounting metric, which, when subtracted ... perform physical count only once a quarter or even once a year.
The periodic system uses an occasional physical count to measure the level of inventory and the cost of goods sold (COGS). Merchandise purchases are recorded in the purchases account. The inventory account and the cost of goods sold account are updated at the end of a set period—this could be once a month, once a quarter, or once a year. Cost of goods sold is an important accounting metric, which, when subtracted from revenue, shows a company's gross margin.