What steps are involved in conducting a physical inventory?

Conducting a physical inventory is a systematic process essential for maintaining accurate inventory records and ensuring the integrity of stock management. The chosen answer outlines the core steps involved in this essential process.

Counting physical items is the initial step where each item in the inventory is physically tallied to ensure that the actual quantity matches the expected quantity according to records. This process is crucial for identifying any discrepancies that may exist.

The next step involves reconciling records. This means comparing the actual counts obtained during the physical inventory against the inventory records maintained in the system. This reconciliation helps to identify any inconsistencies, whether due to theft, loss, damage, or errors in record-keeping.

Finally, adjusting discrepancies refers to making necessary corrections to the inventory records based on the findings from the counts and reconciliations. This might involve updating the records to reflect the correct quantity of each item, ensuring that the inventory system accurately reflects the current stock levels.

These steps are vital for ensuring that the organization’s financial statements are accurate, enabling better decision-making regarding stock management, ordering, and sales forecasting. On the other hand, the other options listed involve practices relevant to inventory management but do not pertain specifically to the physical inventory process.