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Achieving Inventory Cutoff


Another year is almost over and we are closing the books on 2015 to prepare for a fresh start and a new year. Inventory is often the largest asset for manufacturers and distributers, achieving proper cutoff at the end of the year is essential for inventory accuracy. In order to achieve proper inventory cutoff consider performing the following procedures:

  • Reconcile inventory counts: If you perform a year-end inventory count, ensure that the final counts are reconciled to the general ledger and that any discrepancies are investigated and resolved. This might also be a good time to review for any old or obsolete items that should be removed from inventory.
  • Inspect shipping and receiving areas: Inventory that has recently been delivered or is waiting to be shipped may have been overlooked during the inventory count and may need to be added back to year-end amounts.
  • Review shipping terms on sales orders and purchase orders: Generally, sales occurring prior to year-end should be recorded when the goods are shipped and purchases received prior to year-end should be recorded in inventory. However, the terms of the sales or purchase contract can vary and you should know your responsibilities under the contract. Look for the terms of the purchase or sales contract and know who is responsible for the shipping costs, risk of loss and when title and ownership transfer.
  • Confirm inventory held on consignment or held in third-party warehouse: Third parties may need to be notified to provide an accurate count of inventory that is held on consignment or at outside warehouse locations to ensure accurate inventory records.

If you have any questions about inventory cutoff, Berntson Porter & Company, PLLC is ready to assist you. Contact your Berntson Porter Representative at 425.454.7990.


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