How to do a physical inventory count in a small warehouse

A physical inventory count is every item in every location counted at one point in time, then compared with the books. The work divides into deciding, preparing, freezing movement, counting, recounting, comparing and closing.

If you doubt a full count is worth it, read why physical counts still matter first.

Decide the date, the cutoff and who does what

Pick an off-peak date, and pick a cutoff. The cutoff is the date and time the count is meant to describe, so write it on every count sheet.

Start by naming the counters. Then name one person who recounts and a supervisor who signs off each location. Explain the roles to the whole team before count day so nobody learns theirs on the floor.

A counter works with a recorder, and at least one of the two should be someone who does not handle that inventory day to day. That is the practice in Washington State University's physical inventory procedures.

Counting part of the warehouse on a schedule, called cycle counting, is a different practice. It is compared with a full count in cycle counting vs physical inventory count.

Prepare locations, labels and count sheets

Map the warehouse into locations, and group the locations into zones, usually by aisle. An aisle and rack position, a pallet position or an overflow zone can each be a location. Give each counter one zone.

Before count day, work through this list:

• Label every location and every item the way the count sheet will name it.
• Tidy the warehouse so like items sit together.
• Mark what is not countable, such as returns, vendor holds and damaged goods, and move it to a marked zone.
• Arrange the count sheets by location and number them.
• Leave every quantity on the sheet blank.

A blind sheet lists each item with a blank line for the counted quantity and never shows the book quantity.

Freeze movement and handle what crosses the cutoff

Stop receiving, shipping and transfers while you count. If you cannot, set aside a not-to-be-counted zone and mark each receipt Before Inventory or After Inventory, as the Washington State University procedure does. Keep the After receipts in their own zone, away from the stock being counted.

Three cases move a number across the cutoff:

• An order picked but not confirmed has left its location while the books still show it. Add the picked quantity back to the counted total, or take it out of the book number.
• A receipt entered but not shelved is in the books while no location holds it yet. Count the receiving zone as a location, or take the receipt out of the book number.
• A receipt shelved but not entered is in a location while the books do not show it yet. Enter it with the date it arrived, or note it so the difference is not read as extra stock.

Check for these before you call any difference a loss. A transaction never entered, or entered with the wrong date, looks exactly like missing stock. The check comes first and the adjustment second.

The quantity on hand page explains why the book number keeps moving after the cutoff.

Run count day

Count each location once, and return its sheet to the lead before the next location starts. Mark each counted location on the floor map. A location with nothing in it still gets a result, and the result says empty.

The supervisor spot-checks the high-value items while the team counts. At the end, walk the premises and confirm that every location is counted or marked with the reason it was not. The physical inventory count checklist condenses the day into a list.

Recount what anyone doubts

Recount any location the counter or the supervisor is unsure of with a second counter, without showing either counter the book number. The second counter works from a fresh sheet. If the recount still disagrees, the supervisor counts the location with both counters present and records the result with the reason for the difference.

Compare the count with the books

A count is recorded by location, but QuickBooks Online does not track inventory by location within a warehouse. Intuit's inventory adjustment article has the form take one number per item. So each item's counted total is the sum across the locations counted.

Take one item that sits in an aisle rack, an overflow zone and a mezzanine rack of the same warehouse. Its counted total is the sum of those three results, and that one number is what the books are compared with. The full hand reconcile procedure is written once, in the guide to QuickBooks Online inventory limitations.

QuickBooks Online's Physical Inventory Worksheet lists each inventory item on one line with a blank Physical Count line, and it has no location column. The worksheet guide covers what it can and cannot hold.

If your company shows an Inventory counts option under Products and services, Intuit's instructions have you enter a New Quantity for each product in the count and finalize, which creates an Inventory Quantity Adjustment. Intuit's instructions have no step for recording a location, assigning a counter, recounting or approving a variance, as the Inventory Counts article sets them out.

Close the count

Record who counted each location and when. Then record the result, the differences you found and what you decided for each difference. File the count sheets and the recount sheets with the adjustment. Then hold a short review of what slowed the day and what to change in the layout, labels or training before the next count.

The adjustment date, the lock date and how to enter a later correction are in the year-end guide. If a difference will not reconcile, read what to do when QuickBooks does not match the count.

Recording the count with Count

InventoryWare Count records every counted quantity against a location, and an item's counted total is summed across the locations counted. On the phone, the counter confirms the location by scanning or typing its label before the item step appears, then enters the quantity. The counter sees no expected quantity and no variance number for what they count.

A manager can reopen a location for recount. Count connects to QuickBooks Online and imports items with their QuickBooks quantity on hand.

Count posts adjustments to QuickBooks Online only once the count plan is complete. Nothing posts while the count is running, and nothing posts until a manager approves the discrepancy. Only approved lines post, and nothing nobody counted is zeroed automatically. InventoryWare Count is built for one complete physical inventory count, and posting adjustments to QuickBooks from a partial count is not available.

A send is Count creating one Inventory Quantity Adjustment in QuickBooks Online from the approved lines. A send posts only approved lines of items linked to a QuickBooks Online item, and an item with no QuickBooks link is skipped at send. An approved line drops out of the send if a later sync makes its counted total match the QuickBooks quantity, and a line that is still discrepant keeps its approval.