Physical Stock vs Book Stock: Investigate Inventory Differences

Your system shows 1,000 units, but the warehouse count finds only 940. It is tempting to book a shortage immediately. First establish whether the count and records describe the same goods at the same moment. A mismatch can come from timing, location, units, data entry or a genuine loss.

Define what is being counted

• Use the item code and variant, not a similar-looking product description.
• Use one unit: pieces, cartons, kilograms and metres cannot be compared without a supported conversion.
• List every relevant location, including goods at job-workers or in transit where appropriate.
• Separate your goods from goods held for another party.
• Control receipts, dispatches and transfers around the count time.

A fictional difference that is not a loss

Post the supported 40-unit dispatch: expected stock becomes 960. Add the overlooked carton to the count: verified physical stock becomes 960. The corrected figures agree. Treating the original 60 units as a loss would have misstated the result and left the real process errors unresolved.

Investigate movement before value

Trace opening quantity, receipts, issues, production, returns and transfers. In a simple quantity bridge, opening stock plus receipts less issues gives expected closing stock. A production environment may also need yield, normal loss, rework and unit-conversion records. Returns should be assessed for both quantity and condition; a returned item is not automatically saleable.

If an unexplained shortage remains, preserve the count sheets and movement evidence. Review access, handling and authorisation without assuming who caused it. A properly approved adjustment should identify the reason and responsible reviewer. Altering prior quantities merely to match a count can conceal a recurring control weakness.

Damaged stock is a different question

Goods can be physically present but damaged or difficult to sell. That is not the same as missing quantity. Valuation depends on the applicable accounting or statutory framework, relevant cost and recoverability. A blanket percentage reduction for every old item is not a substitute for evidence. Review CAS-25 and inventory valuation and distinguish that lesson from the specific rules governing your statement.

Use a difference register

Questions that often come up

Can goods at a job-worker still belong to us? Yes, physical location alone does not establish ownership. Check agreements and records, including confirmations where appropriate.

Can a stock adjustment resolve the problem? It can correct an approved record, but does not explain the cause. Repeated adjustments need process review.

Is a cycle count enough? Counting selected items throughout the year can help. The design depends on risk and record quality; it does not automatically replace every financial-reporting or audit requirement.

Your next practical step

Choose one high-value or frequently adjusted item. Recount it, reconcile its recent movements and document the cause before changing value. For goods that are present but not moving, use the separate slow-moving stock guide.