Physical count

What it means

A physical count is the part of stocktaking in which the actual state of tangible assets is established on the spot: by counting, measuring, weighing or inspecting. It covers stock in the warehouse, cash in the till, stamps and vouchers, machinery, vehicles, office equipment and other tangible assets.

The Accounting Act requires stocktaking as at the date of the financial statements, but for inventory the physical count may be done up to four months before or two months after that date if movements in between can be demonstrably accounted for. For fixed assets once every two years is enough.

The result is an inventory list signed by those who carried out the count and by the person responsible for the assets. Comparing it with the books gives the stocktaking difference, meaning a shortage, damage or surplus, which is then recorded.

How it works in practice

For warehouses we recommend planning the count in advance: set the day, stop or precisely record movements during counting, divide the warehouse into sections and count in pairs, one counting and one recording. In larger warehouses scanners and a stock system help, printing a list of items without quantities so the counters are not influenced.

We count the cash till when the cashier changes and at random during the year, not only at 31 December. A difference between the cash and the cash book signals an error in the records or a problem that must be dealt with immediately.

Differences found are booked in the period the stocktaking covers. A shortage above natural loss allowances is tax-deductible only up to the compensation received from the responsible person or insurer, while a surplus is income. Where differences recur, we look for the cause in the processes.

What to watch out for

The most common mistake is a “desk” stocktake in which the book figures are copied into the list without a real count. It is easily exposed in an audit or inspection, and the company loses the evidence that its accounts are verifiable, which can lead to a fine and doubts about the whole set of financial statements.

The second mistake is leaving out goods that are physically elsewhere: with a customer on consignment, with a supplier for repair, in an external warehouse or in transit. These belong to the company and must be verified, often from documents, or a false shortage will appear.