Stock taking is the counting of on-hand inventory. This means identifying every item on hand, counting it and summarizing these quantities by item. There may also be a verification step, where the count results are compared to the inventory unit counts in a company's computer system. Stock taking is a common requirement of a periodic inventory system, and may also be required as part of a company's annual audit.
In short, a basic stock taking results in a summary-level document that contains a list of the quantities on hand for every inventory item as of a specific point in time. The procedural steps required for a stock taking are:
- Select and train the counting teams in regard to how to conduct counts and fill out the associated paperwork.
- Establish a cutoff time, after which no further inventory in the receiving area is allowed in the warehouse, and no items are shipped out. It is helpful if there is no production, receiving, or shipping activity on the day of the count.
- Assign counting responsibility areas in the warehouse to each count team.
- Distribute a prenumbered sequence of count tags to each team, and log in the number ranges distributed.
- In each count team, one person identifies and counts inventory while another person fills out the count tag. The original tag is taped to the inventory, and the team retains a backup copy.
- When each team is done counting, they turn in the count tags. The count tag administrator checks to see if any tags are missing, which may require an additional search to find the tags. They are usually still attached to the tags that were taped to the inventory.
- The count tag clerk summarizes the count tags into a spreadsheet, which is used to create summary totals for each inventory item. An alternative is to enter the information into a database, which does a better job of aggregating summary totals.
- The cost accountant compares the resulting information to the unit balances maintained in the company's perpetual inventory system (assuming that it has one). If there are large variances from the existing database, a count team goes back to the warehouse to verify the original counts.
A more frequent form of stock taking is called cycle counting, which is completed every day. If a company uses cycle counting, the warehouse staff counts the inventory in a small portion of the warehouse and matches its count information against the records in the computer system. If there are errors, the warehouse staff corrects them, and also investigates the underlying reasons why the errors occurred. An active cycle counting program will at least improve the accuracy level of the inventory records, and may even make it unnecessary to conduct a month-end physical inventory count.