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Internal controls for physical count of inventory

Chiappetta, Larson, Wild, Fundamental Accounting Principles, 18th Ed., McGraw-Hill 2007, Original work published 1976). (Wild, 2007, page 599 )

Describe the internal controls that must be applied when taking a physical count of inventory.

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The fundamental purpose of inventory control is to see that the inventory exists, it belongs to the firm, properly valued and properly classified. The statutory auditor must verify a firm's system of internal controls before proceeding for inventory audit

An important principle of accounting is that asset of inventory needs to be correctly valued. It is necessary to ensure that the financial statements of the concern are accurate.Errors made in recording the value of ending inventory in one financial year result in errors to financial statements for that year as well as the subsequent financial year. Therefore, it is very important that physical counts be periodically taken.

The unofficial inventory is often overlooked because it is not very significant as compared to salaries and capital equipment. But unofficial inventory can affect Net ...

Solution Summary

Internal controls for physical count of inventory is examined.