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Risk and management Accounting Best Practices_8

Tham khảo tài liệu 'risk and management accounting best practices_8', tài chính - ngân hàng, kế toán - kiểm toán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 288 Financial Statements Best Practices 12-22 Use Cycle Counting to Avoid Month-End Counts Author s Choice A common effort for companies with poor inventory record-keeping systems is to count the inventory at the end of every reporting period. By doing so the controller is assured of a reasonably accurate cost of goods sold figure though at the cost of shutting down the business while the counting process goes on since this may interfere with accurate inventory counts which not only runs the risk of losing some business but also requires paying some employees to conduct the decidedly not value-added inventory counting activity. Over the course of a year this represents either a major loss of revenue addition to expenses or both. The solution is to stop taking periodic inventory counts. By doing so there is no stoppage of sales activities nor is there any need to redirect activities to counting inventory. In addition the accounting staff no longer has to spend valuable time during the end of the month to participate in the inventory count which gives them more time to complete the financial statements more quickly. Unfortunately this happy state of affairs brings with it some risks. The main one is that inventory may become quite inaccurate over time resulting in cost-of-goods-sold numbers in the financial statements that will over time depart quite a long way from the actual situation. If this number is inaccurate the borrowing base information a company presents to the bank will also probably be wrong which may give the bank grounds for withholding additional borrowings. A final problem is that if the financial statements are incorrect the controller may pay for this oversight by losing his or her job. The best way to avoid all of these issues is to use cycle counting. This process involves a continual count of the entire inventory so that all items especially the high-value or high-usage ones have their quantities verified frequently. In addition a trained .