What process involves counting and evaluating an inventory item by item?

The process of counting and evaluating an inventory item by item is referred to as physical inventory. This procedure involves a thorough physical count of all inventory items, typically conducted at regular intervals or during specific periods, such as at the end of a financial year. The primary goal of a physical inventory is to ensure that the records of the inventory balances match the actual quantities on hand, which in turn helps to identify discrepancies, such as theft, damages, or errors in record-keeping.

Conducting a physical inventory can reveal valuable insights into inventory management, assisting businesses in making informed decisions about restocking or discontinuing items. This process not only supports financial accuracy but also helps maintain effective operations by ensuring that inventory levels are aligned with the demand and sales strategies.