Stocktaking

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General Requirements

Stockroom management must ensure:

• That the stockroom manager has prepared for a scheduled stocktaking by taking all the necessary steps to ensure stock is arranged neatly and in such a way as to help accurate counting.
• That all relevant documents have been audited and submitted to the relevant stocktaking team.
• That the stocktaking is complete.
• What resources are available?
• That all participants are informed.
• That accounting records have been updated, cut-off procedures have been followed, and both personnel and equipment are available to complete the extension of values.
• That he/she either acts as or appoints, a stocktaking monitor, where required.

The manager of the stocktaking team must control all supervised stocktaking to ensure that all members are properly briefed on their duties and responsibilities.

While the accuracy of the physical count is important, the need to verify that all outstanding documentation is accounted for and recorded in the appropriate accounting period, cannot be overemphasized.

All change funds, petty cash funds, and other funds that could affect inventory accountability must be verified but are not included in the inventory. Attach copies of the verifications to the stocktaking report.

Pre-Stocktaking Requirements

Different organizations have different forms used in stocktaking. The forms are serially numbered. All stocktaking form numbers shall be recorded on the issue in an Accountable Document Control Register in accordance with organizational procedures checked off on completion of the stocktaking.

Prior to the start of a supervised stocktaking, the manager should ensure that:

• All merchandise in the stockroom is sorted and merged, to facilitate counting and listing.
• Properly mark all merchandise in the receiving dock, including inventory for which the invoices have not yet been received by its departmental and/or age code.
• Move all empty boxes, containers, etc., from the stockroom to prevent excess counts.
• Clearly mark empty cases and containers to ensure that they are not counted as being full.
• Containers and cases of merchandise in reserve stock will be marked with the departmental and/or age code.
• Goods on consignment are clearly marked and verified on separate stocktaking sheets.
• A stocktaking plan is prepared, including a floor plan, and all staff members participating in the stocktaking are instructed in their responsibilities and duties.
• All rental equipment is removed and clearly marked so as to prevent inclusion in the count.

The manager, prior to a scheduled supervised stocktaking, shall provide management with formal advice confirming that the action, as outlined in the organizational stocktaking procedures, is complete. Where supervised, carry out stocktaking on a surprise basis. The management shall obtain confirmation from the stocktaking supervisor that all merchandise, cash, and credit documents are included in the count and that all merchandise is either in a saleable condition or has been recorded on an RPC.

Counting Procedures

The most common procedures for counting are:

• Teams of two – a counter and a recorder, will count stock.
• Use casuals, where possible, to count easier sections.
• Count locations holding Pegboard items in vertical rows starting, at the top and working down.
• Both the counter and the recorder individually count the total number of units in a location.
• The counter calls out the total and, if both agree, it is entered onto the stock sheet by the recorder under unit pre-count.
• The counter then calls out the unit price and quantity for each item in the order the item is displayed.
• The recorder records the selling price and each unit on the stock sheet. Once four units are counted, the 5th unit is entered as a slash.
• Once the counting of a location is finished, the recorder adds up the horizontal strokes and slashes and records the total for each unit price in the quantity column.
• The recorder now adds up the quantity column vertically and calls out the total quantity. If it is not the same as the pre-count, then the procedure is repeated until both agree.
• In the event of an error, the team must call the branch controller to do the correction. Once the total quantity is agreed upon, the recorder enters the total onto the stock sheet in the column headed QTY and signs the stock sheet.
• He/she then hands the sheet to the counter for his/her signature. The stocktake sheets must remain at the end of the location for inspection.
• The location sticker must be marked with an X.
• No extensions are done by the branch. These are done by the internal auditors.
• Stocktaking and cyclical counts are conducted according to workplace policies and procedures.
• Stock records documentation is completed according to the workplace stock control system.
• Discrepancies in stock are recorded and reported.
• Electronic recording equipment is operated, if required, and maintained according to manufacturer guidelines.

Extending the Stock Count

Stocktaking forms shall be extended and totalled as quickly as possible. Accuracy and speed in completing the inventory are important, therefore, management utilizes all available resources for this task, and if deemed necessary, employs an outside source of services to complete the extensions or, hire extra part-time help.

Request for Credit

On the day of stocktaking, the stocktaking team shall:

• By reference to the Accountable Document Usage Register, record the serial numbers of the last Request For Credit issued, and the last number received;
• By reference to the outlet’s outstanding Request for Credit file, reconcile all outstanding numbers and ensure that all completed forms have been processed;
• Record the cost and retail value of the merchandise received as shown on suppliers’ invoices and PO, less the amount requested for credit;
• Record the cost and retail value of other outstanding Requests for Credit and include them in appropriate forms; and
• Check off the serial numbers of unused forms and verify that all forms issued have been accounted for.

Repairs

The stocktaking team shall record the selling price and department of all outstanding repair tags covering accountable merchandise returned for repair, following organizational procedures.

Cut-Off Procedure

It is the audit procedure for determining whether a transaction took place before or after an accounting period. It assures that the transaction has been recorded in the proper period. It is the date chosen to stop the flow of transactions, merchandise, cash, and so, on for audit purposes. For example, in taking a physical inventory, there must be a cut-off date applicable to sales and purchases. This may require closing receiving and shipping rooms while the inventory count takes place. Transactions of one period must be differentiated from those of another. Cut-off errors must be avoided diligently when recording transactions.

It is important to have good cut-off procedures, so stock is recorded accurately, as this has the potential to affect the calculation of gross profit. The more stock you carry, the more important this becomes.

You need to be careful with items of stock that arrive around balance dates. Goods arriving during the last week of the year should be monitored with extra care.

If you receive a shipment of stock items on the balance date, you will generally be invoiced for them on that date and the invoice will be included in your Accounts Payable. If that is the case, the stock also needs to be included in your stocktake.

Cut-Off Procedure Example:

For example, assuming a March balance date, make sure all stock arriving on or just before the balance date is:

• Counted in the stocktake
• Invoiced to you on or before 31 March
• Either paid for on 31 March or included in Accounts Payable

If you have good, inwards goods procedures in place, it will be easier to have good cut-off procedures. Incoming goods need to be:

• Shelved, or
• Put in a holding area for inclusion in the stocktake

Post Stocktaking Procedure

On completion of the physical count, all stocktaking sheets shall be handed to the supervising member of the stocktaking team. All stock sheets must be accounted for. Under no circumstances is a sheet destroyed, and voided sheets must be clearly marked. The stocktaking sheets shall then be delivered to management, depending on organizational procedures, attached to a Certificate of Stocktaking.

In instances where there is an inventory shortage, the following course of action is implemented:

• The management should inform the regional manager of the shortage by fax. Once informed, they will be responsible to assess the accuracy of the stocktaking and forwarding findings and recommendations to executive management.
• Depending on the severity of the shortage, management will advise and request assistance in conducting a Board of Inquiry or Summary Investigation.

Where an organization makes use of professional stocktaking teams, they shall be hired and controlled by the management of the organization. The results of professional stock takers are delivered to the management of the organization. In most cases, professional stock takers are not required to record the results of their count on stocktaking forms. It is normal practice that only a gross count by a department is recorded.

To enable the auditor performing the annual audit to express an opinion concerning the fairness of stated inventory levels, management only requires a random sample check (red check) of merchandise by personnel. This check is conducted while the professional teams perform their count.