[AMERICANDREAM]

Which of the following internal controls most likely would be used to maintain accurate inventory records?

Periodic inventory counts are used to adjust the perpetual inventory records.

Why is this answer choice correct? If you’re using perpetual inventory, isn’t information always up to date? Why does periodic inventory come into effect for perpetual inventory to be accurate?

[Missy]

In theory if using perpetual inventory AND all internal controls are followed, the information will always be up to date. But if internal controls are not being followed (for example employees stealing inventory, breaking and not recording it, or accidentally shipping two of something but recording only one as shipped) the physical inventory will not agree with inventory records.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[AMERICANDREAM]

@mla11692 Thanks. To clarify, perpetual system does NOT take into account the physical count of inventory. To amend this and to deter the lists you've mentioned (stealing, etc), perpetual needs to be reconciled with periodic. Is this correct?

[Missy]

no nothing to do with periodic inventory at all.

“periodic inventory counts” only means at some determined interval a physical inventory is taken. Might be monthly, quarterly or annually. When those inventory counts are performed the inventory on the books is adjusted if necessary to keep the perpetual inventory accurate.

For example I do cycle counts (not a full physical inventory, just a random selection) monthly. Monthly is my periodic inventory count. If quickbooks says I have 13 widgets but my count only shows 12 on the shelf, I make a quantity adjustment in Quickbooks of -1.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

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