Inventory Verification

IAS 2 defines inventories as the asset kept for sale in the regular course of business, in the course of production for resale, and the form of materials or supplies used in the manufacturing process or the provision of services. Inventories are measured or valued at a lower cost or net realizable value, according to IAS 2.

The act of physically inspecting the store’s inventory of goods at regular intervals is known as inventory verification or stocktaking. Periodically, inventory verification or stocktaking is done, typically towards the end of the fiscal year when the accounts are to prevent fraud, wastage or damage.

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This includes the following tasks:

  • Meet legal requirements

To ensure that the business is following local regulations. All legal requirements and compliances will be determined when designing procedures.

  • Establish a Chain of Command 

Establishing a hierarchical framework that will give staff guidance while they carry out their tasks, boosting productivity and minimizingthe time spent getting approvals.

  • Helps transfer work easily

An employee will be able to complete the jobs only based on the established procedures once the data processor has been specified. New hires will be able to readily adjust to the job.

Our Role in Inventory Verification Services
Inventory verification is covered by GSPU’s goods verification services, which validate the existence and location of the inventories that a company owns. The following is a list of the services we provide for inventory verification:

  • A physical inventory count based on various SKUs
  • Marking the physically verified stock
  • Identifying obsolete and damaged stock
  • Ensuring that supporting documents are maintained for each of the stock items available.
  • Discover the differences between the inventory as it appears in the books.

Purpose of conducting an Inventory Verification

Raw materials, work-in-progress products, and finished goods are different types of inventories. Raw materials are the things that are used to create a company’s product. Work in progress refers to semi-produced or semi-finished products in a business, while finished goods refer to fully manufactured or finished products in a business. Stock refers to the number of unsold items kept by a company. Closing stock or closing inventory refers to the amount of unsold merchandise remaining at the end of the period as opposed to the amount remaining at the beginning of the period.

The term “stock turnover” refers to the movement of stock or inventory inside a company. Inventory turnover is another name for stock turnover. The correlation between average stock or average inventory and the cost of goods sold or the cost of sales is known as the stock turnover ratio.

Average inventory / Goods Sold Cost is the stock turnover ratio.

Utilizing turnover ratio as a method of material control helps prevent wasting money on resources with low usage. Additionally, it aids in preventing stock obsolescence and avoiding needless storage costs. The cost of sales refers to the total amount of items sold by the company.

Opening stock + Purchases- closing stock is the Cost of goods sold.

The average stock is the average of the opening and closing prices. Average inventory is another name for the average stock.

Opening + closing stock / 2 gives the average stock.

The number of days it takes for the average inventory to be consumed can be used to express the stock or inventory turnover ratio.

Days-based stock turnover ratio= Days of the year/ratio of inventory turnover.

The procedure for controlling the organization’s inventory of items is called stock management. To handle stock, two methods are primarily used: a periodic inventory system and a perpetual inventory system.

The periodic inventory system is an inventory system where changes are routinely made to the stock of products. Another name for it is a physical inventory system.

The perpetual inventory system is an inventory system where changes are continuously made to the stock of items.

The approaches for determining the worth of the organization’s inventory are known as stock management procedures. The First in First out and Last in First out approaches are frequently employed in stock management.

Stock items are distributed according to the first in, first out (FIFO) approach, in the order that they are received in the store. The first items received will be distributed first. First in, first out. In other words, the old stocks are issued first, and then the new stocks. Using this procedure, the closing stock of products will be valued using the most recent price.

The opposite of the first in first out procedure is the last in first out method. Here, the last-received stock goods are distributed first. Problems are caused by the most recent purchase. The issues’ prices are determined by the unit cost of the most recent lot or buy.

The goals of inventory verification are as follows:

  • Inspecting the veracity of store records.
  • Presenting the stock’s closing price.
  • Preparing an organization’s final financial statements.
  • Revealing fraud, theft, and loss involving the inventory of products.
  • Exposing any gaps in the system for managing the stock of products and storing them.
  • The two categories of the inventory verification approach are the selling price method and the cost price method.
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