This purpose of this policy is to provide guidance for a company and its subsidiaries regarding the need to take regular physical inventories of the company’s raw material, work in process, finished goods, and stores inventories. A company uses various types of inventory in the course of its business. Maintaining adequate controls over inventory is important to ensure proper balance sheet valuation and recognition of cost of products sold. Additionally, a physical inventory provides an opportunity to maintain the accuracy of perpetual inventory records.
Under this policy, procedures should ensure that all physical inventory results are summarized, discrepancies are investigated, and necessary adjustments are recorded.