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Cycle Counting

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Even though a company may have an active campaign to record inventory accuracy, those records need to be verified through a continuing audit. Those audits are known as performing a cycle counting of work-in-progress, piece part inventory and finished goods.

Explain how cycle counting audits improve inventory accuracy.

Explain how items need to counted on different time schedules.

Please site at least 1 reference.

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Explain how cycle counting audits improve inventory accuracy.

Cycle counting audits can greatly improve inventory accuracy mainly because it involves more frequent counting. Cycle counting means physically conducting a count of the current inventory, in small quantities, multiple times a year, in order to ensure the normal annual inventory count is accurate. When companies use cycle counting, they are doing a double check on their inventory. If errors or inaccuracies are found, then it is necessary to review the inventory to see what caused the discrepancies such as was a product sent that should not have been sent or maybe a product broke and wasn't accounted for. There are all types of reasons that could throw off an inventory count. "Cycle Counting involves counting part of your inventory every day ...

Solution Summary

This article discusses the advantages of using the cycle counting process. It also defines what cycle counting is and describes how companies may utilize it.

See Also This Related BrainMass Solution

Production Cycle- Auditing and Assurance Services

1. Sales/Inventory Cutoff.

Your client took a complete physical inventory count under your observation as of December 15 and adjusted the inventory control account (perpetual inventory method) to agree with the physical inventory. After considering the count adjustments as of December 15 and after reviewing the transactions recorded from December 16 to December 31, you are almost ready to accept the inventory balance as fairly stated. However, your review of the sales cutoff as of December 15 and December 31 disclosed the following items previously considered:

28,400 36,900 12/14 12/16 12/16
39,100 50,200 12/10 12/19 12/10
18,900 21,300 1/2 12/31 12/31

What adjusting journal entries, if any, would you make for each of these items? Explain why each adjustment is necessary.

Here is my question:::: Do we only need to adjust for the last transaction, which was shipped on ½ and therefore should not be counted for this year?

2. Audit Simulation: Purchasing Cutoff.
When tracing using the cutoff information from the Deember 31 inventory count of Thermo-Tempur Mattresses, you note the following information:

Receiving Report Number Date Received Total Cost
1179 12/28 12,433.61
1180 12/28 8,923.34
1181 12/29 15,448.22
1182 12/31 14,109.33
1183 12/31 11,482.57
1184 1/2 17,852.56
1185 1/3 8,753.95

The purchases list shows that the following items were recorded in December.

Receiving Report Number Date Received Total Cost
1179 12/28 12,433.61
1180 12/28 8,923.34
1181 12/29 15,448.22
1182 12/31 14,109.33
1184 1/2 17,852.56

Prepare a correcting journal entry assuming that Thermo-Tempur uses
A) A periodic inventory system
B) A perpetual inventory system that was updated for the inventory count.

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