PHYSICAL VERIFICATION OF INVENTORIES AND FIXED ASSETS
Fixed assets form an important investment of any organization. Regular physical verification of inventories and assets once a while helps in assessing where they are placed, what best use can be done with those not in use, what needs an inventory markup in maintaining the day to day functioning of work environment, helps any business forming a crucial component in decision making. Let’s get into the basics before we move further into the reasons for its importance.
Basics of what is fixed asset and inventory:
What is a fixed asset?A fixed asset is a long-term tangible piece of property or equipment that a firm owns and uses in its operations or provision of services to generate revenues. Fixed assets most commonly appear on the balance sheet as property, plant, and equipment and are divided into current assets and noncurrent assets. They are also referred to as capital assets.
Information about a corporation’s assets helps create accurate financial reporting, business valuations, and thorough financial analysis – which typically involves assessing the returns that the company is making on these assets (Return on Investment and such similar ratios) and how much revenues are the assets creating (typically determined by turnover ratios).
What does inventory mean?Inventory is the term for the goods available for sale and raw materials used to produce goods available for sale or such semi-finished products that are in the process of becoming finished goods (work-in-progress).
Given the importance inventory has on the business and its profitability, there are various management practices and principles such as economic order quantity (EOQ), just-in-time (JIT) practices that are prevalent and adopted by various businesses. Inventory, therefore, represents one of the most important ‘current’ assets of a business because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company’s shareholders.
Best practices in physical verification of inventories and fixed assets:
Manual stock recording and verification is impasse. Automate and consider an asset-tracking system which increases accuracy and saves time and money.
Best ways to identify any item – RFID or barcode. This eliminates data entry errors and the actual count ensuring an accountant to keep track of everything at his/her fingertips.
Storing and retrieval is the most important task and knowing exact location is very important. To avoid redundancy in counting, one should mark each item as counted after considering for physical verification either by way of digital controls or by way of physical controls.
Updating data regularly pertaining to any changes is vital as it ensures there is redundancy.
Once or twice a year review to have better control on the assets or stock and to make sure that whatever items are reported in the books of accounts as assets/ stock are available physically also.
Usage of Artificial Intelligence (AI) is becoming a norm for all big companies in managing their stock info. AI will play big role in near future when cost of implementing comes down and will reduce whatever shortcomings being faced currently.
Adopting and keeping track of latest and best practices will ensure the time task is reduced to the maximum extent.
The whole activity gives a holistic information of the business any given time.