Physical inventory is the actual count of the products and materials that a business owns. This process ensures that the actual amount of products on the company’s sales floor, stockroom and warehouses match the numbers that have been tallied in the company’s financial books.
Many businesses conduct a full and thorough inventory on an annual basis, with smaller sample counts that occur at multiple points throughout the year. A physical inventory may be required due to certain tax regulations or financial accounting rules. Automation, inventory control systems and perpetual inventory systems can make the act of physical inventory counting easier.