Methods of Stock verification

BySamiran Halder

Roll No. – 06

MBA in FinanceUniversity of

Calcutta

Contents1.Introduction2. Objective of stock verification3. Methods of stock verification4. Who should do the stock taking5. Treatment of discrepancies (Reconciliation)6. Application7. Conclusion

Stock Verificatio

nStock verification is done by actual counting, weighing and measuring of items in stock which is necessary to support stock value as per ledger balance.

Objectives of Stock Verification

Physical stock verification which involves actual counting, measuring weighing of all items in stock is necessary for the following reasons:

• To support the value of stock shown in the balance sheet through physical verification.

• To verify the accuracy of stock records.• To disclose the possibility of fraud, theft or loss or

deterioration.• To reveal the weakness of the system, if any (i.e. whether the

stock is in safe custody)

Methods of stock verification

Periodic stock verification Perpetual stock verification Blind stock verification

Periodic Stock Verification• Physical stock verification is normally done

periodically, i.e., once or twice in a year. Under this method.

• Value of stock is determined by physical counting of the stock on a particular date.

• Suitable for smaller organizations.

Perpetual Stock Verification• Physical stock verification is spread throughout the

year according to a predetermined program. And each item is physically examined at least once a year.

• During physical verification neither the stores nor the works are to be closed.

• Surpluses and shortages arising from time to time can be written-off after proper investigation.

Blind Stock Verification• Stock verifiers are given the location, but not details

about code numbers, description and stock record balances in order to ensure a fair verification of stocks.

• Complete the verification and only then reconcile with the stock records.

• It is not very popular and it virtually serves no purpose when the operation of stores has to be well planned.

Who should do the stock taking?

• In some organization store-keepers are required to take stock of their own stores. This is not a correct procedure.

• It is in the tightness to employ full time stock verifier or internal auditors for doing this job. However, they can take the help of store-keepers and even engineering staff for proper identification.

Treatment of discrepancies(Reconciliation)

Often the amounts of stock found by physical examination do not agree with stock records. So certain discrepancies exist. Where physical stock is more, there is surplus and where it is less than the stock records there is shortage.

ApplicationEach User department is allocated the Budget for

the consumption of various commodities of items in the beginning of the financial year. Issue of material to the user department is made after ensuring the availability of budget for that department for that commodity.

Once the issue of material is made the budget of the department is updated. Once the budget is exhausted the user departments need to take additional budget provision or clearance of competent authority to draw further material from stores. This consumption budget monitoring is done to ensure proper control on the expenditure and cost incurred by the user department.

Conclusion• Used in departmental stores, pharmacies, retail

outlets, warehouses and distribution business.• Periodic stock taking to increase the efficiency in

stock management.• Match your physical stock with the book stock and

find out the different-store wise.• Option to scan barcode for stock counting.