The cycle count process is used to count portions of your inventory based on the ABC classification percentages assigned for each department and the ABC class assigned to each item over a period of time rather than all your items at the end of each accounting period. The ABC classification is used to determine how often an item should be counted during the cycle count period (week, month, quarter, year) tolerance levels, and to break down accuracy measurements. ABC classifications may be based on how perishable an item is, volume sold, dollars sold, or inventory value. The “A” classification is used to identify which items should be counted most frequently, “B” frequently, and “C” less frequently.
The cycle count process can only be used for unlotted items.
The cycle count process uses the Physical Inventory Report by department to identify which items should be counted based on the percentage or fixed number of ABC class items. Inventory reconciliation is used to record the actual physical count and compare it to the on-hand perpetual count. The variance for between the actual and physical counts is maintained. Items can be marked as uncounted and included on the next cycle count.
The system does not pick the items at random, but rather will work down the item list to make sure it has cycled through the counts over time. Set the percentage per cycle or count per cycle to achieve the number of times an item will be counted over a period of time.
To set up cycle counting:
1. For each department, specify the percentage of the total items to be counted, or a number of items to count in each cycle for the A, B, and C cycle count classifications.
Example: Enter 20 in the % field of A items to count 20% of the A items in that department today. Or, enter 10 in the count field in order to count 10% of those items today.
2. Assign the item a cycle count classification of A, B, or C.
Using Cycle Counts:
1. Run the Physical Inventory Report by department. Select Cycle Count.
2. Take the physical count based on the items identified on the Physical Inventory Report
3. Use Inventory Reconciliation to reconcile the physical inventory to the actual inventory. When the inventory reconciliation is updated and finished the items on the reconciliation will be tagged as counted and exclude from the cycle count until all items for the ABC classification for the department have been counted. Item tagged as uncounted will be included in the next cycle count.
Please consult your CPA or other accounting professional to see if cycle counting is right for you.