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