What does physical inventory refer to?

Physical inventory refers to the actual count of goods in stock at a specific point in time. This process involves physically counting and verifying the quantities of items available in a warehouse, store, or production facility. It is a crucial component of inventory management as it helps ensure accuracy in inventory records, assists in identifying discrepancies, and aids in making informed purchasing and sales decisions.

Conducting a physical inventory allows businesses to confirm that the recorded inventory levels reflect the actual inventory present. This can reveal issues such as shrinkage due to theft or damage, overstocking, or stockouts, which are critical for effective supply chain management. Understanding the actual quantity of products on hand is essential for financial reporting, operational efficiency, and maintaining optimal stock levels.