This inventory counting guide gives a small shop a simple plan: count a little every week, count everything once a year, and write down every difference. Stock on the shelf is cash. If your records are wrong, your profit figure is wrong too.
Pick the right kind of count
A full count means you count every item on one day. Most shops close for part of a day to do it. It gives one clean number for the whole business, and it suits a year-end check.
A cycle count means you count a small group of items on a set schedule. You might count fast sellers every week and slow sellers every month. Over a year, you count everything, and the shop never has to close.
Many small retailers use both. They run cycle counts through the year and one full count before they close their books. Choose the mix that fits your staff and your trading hours.
Prepare before you count
Good prep saves hours. Tidy the shelves and the back room. Put like items together. Bring loose stock, returns and damaged goods to one place so nothing is missed or counted twice.
Use a count sheet. List each item by name or code, its shelf spot, and a blank box for the counted number. Do not print the system quantity on the sheet. If counters can see it, they may copy it instead of counting.
- Use two people per area: one counts, one writes.
- Mark each shelf with a tag or tick once it is counted.
- Count in the same order every time, such as left to right, top to bottom.
- Keep stock that belongs to others, such as goods on consignment, in a separate list.
Set a cut-off rule
A cut-off rule says which goods count as stock on the count date. Without one, the same item can be counted twice or not at all.
Keep it simple. Stop receiving and shipping while you count, or record every movement during the count on one log. Goods you have received before the cut-off go into stock, even if the supplier invoice has not arrived. Goods you have sold and handed over before the cut-off come out of stock, even if you have not yet issued the invoice. Write the last delivery note number and the last sales receipt number on the count sheet.
Check the variances
A variance is the gap between the counted number and the number in your records. Work it out for each item, then look at the biggest gaps first, by cash value and not only by units.
Before you change any record, recount the items with large gaps. Then look for common causes: unrecorded sales, wrong item codes, missed deliveries, damaged goods thrown away without a note, and theft. Fix the cause, not just the number.
Set a limit that triggers a recount, for example any gap above a fixed dollar value or a set percentage of the item. A manager should approve every adjustment and sign the sheet. Keep the signed sheet with your records.
Value your stock and keep your records
Counting gives you quantities. To get a value, you multiply by a cost. Under the international accounting standard on inventories, stock is measured at the lower of its cost and its net realisable value. Net realisable value is the price you expect to sell it for, less the costs of making the sale. So if an item has gone out of fashion or is damaged and will sell below cost, write it down to the lower figure.
For items that are alike, the standard lets you work out cost with the first-in, first-out method or the weighted average method. Pick one and use it every year, so your numbers can be compared from one year to the next.
Singapore businesses should also keep the count sheets as part of their accounting records. The tax authority, IRAS, says accounting records and supporting documents must be kept for 5 years. Failing to do so can mean expenses are disallowed or extra income is assessed. Your accountant can tell you how the rules apply to your business.
Sources: IFRS Foundation, IAS 2 Inventories (ifrs.org/issued-standards/list-of-standards/ias-2-inventories); IRAS, Keeping proper records and accounts (iras.gov.sg/irashome/Businesses/Self-Employed/Learning-the-basics/Keeping-Proper-Records-and-Accounts).
A simple yearly rhythm
Run cycle counts every week for fast sellers and every month for the rest. Do a full count before year end. Review variances after each count and fix one cause at a time. Over a few cycles, the gaps shrink and your records can be trusted.
This post is general information, not accounting or tax advice.