What is it called counting the goods on hand at the end of the accounting period and determining the cost of these goods by the accounting records?

Answer 1

I know the answer to this question because I am an auditor and I have audited inventories all over the world. I am a certified Internal Auditor.

There are two steps, given the wording of your question.

Step 1: 'Taking inventory" or "A physical count of inventory" or "stock taking". There is no one universal English phrase. Name it as you like it. Step 1 consists of assembling a group of people, giving them written instructions and probably using paper pre-printed cards with labeled spaces for data (called a "count ticket"). Give the people verbal instructions as well. Send them out into the warehouse or factory and have them count the goods on hand. More detail: You need to record at least 2 things: the name or stock number of the item being counted, and the quantity that is physically sitting there on the floor or in the rack. The goods need to be labeled with a stock number, or the counters (people) need a way to determine what they are looking at and look up a stock number. So after you determine what you are looking at, you write the stock number on the card. Then you COUNT how many units are on hand. It is not rocket science. It is just common sense. You need to record what is there and how many units are there. You will have a "unit of measure" for each item: piece, unit, pair, assembly, kit, feet, pounds, yards, etc. You need to have a unit of measure already established for each item. It is best to have the inventory labeled with a paper (or something) label, that shows the description, stock numner and unit of measure. If you get the unit of measure wrong, your count will be wrong, so unit of measure is important. Some things are counted by weighing them, and the unit of measure is pounds or kilograms. Once you get everything counted, you collect all the count ticket cards (which each have a serial number, so you can place them in physical order and see if you got back all the tickets, which is important). You will probably have a computer program where you can key each count ticket, and the software will sort all the counts into order by stock number, and add up a total where there is more than one ticket for a given stock number. So you get a report or computer file of what is on hand and how many.

Stpe 2: Costing the inventory. Once you have the number of units on hand for each item (as above), then you need to applpy a "unit cost' to each stock number, multiply the quantity on hand times the unit cost, and get total $ on hand for each item, then add up all of the $$ on hand and get a total inventory $ on hand, which you enter into your inventory account on your accounting general ledger. There are various methods to establish a unit cost for an item. I manufacturing, you will already have some sort of "inventory costing method" where you set up a unit cost for each ingredient in the product, each labor operation required to fabricate the unit, the amount of labor (in minutes or seconds or hours) and a price for each unit of labor based on the wage rate, plus employee benefits costs, so you get a cost per hour of labor. Then you need to calculate a rate of "overhead $ per labor hour (or machine hour)", which is an allocation of overhead costs to each labor hour (or machine hour). You take all your overhead expenses for the year, and add them up (property tax, maintenance, cost of the building, cost of machinery, indriect labor, etcetea) and divide the total $ by a budgted number of labor hours you expect to have the workers work for the entire year. This gets you an "overhead rate of $ per labor hour". This becomes part of your unit cost. The unit cost consists of material, labor and overhead. // In retail or wholesale, your unit cost is the price you pay the supplier to but the merchandise, so it is much easier to determine a unit cost in retail or wholesale than in manufacturing. email me at david49586@Yahoo.com and I can give you more detail.