A physical verification of actual stock against recorded book balances
A stock audit, also called an inventory audit or physical stock verification, is the process of physically counting all goods in your warehouse, shop, or godown and comparing the actual quantities with the stock records in your books or software. The purpose is to identify discrepancies caused by theft, damage, spoilage, data entry errors, or unrecorded transactions. For Indian small businesses, conducting regular stock audits is essential for maintaining accurate inventory records, preventing losses, and ensuring that your financial statements reflect the true value of stock on hand. Stock audits can be done annually (typically at year-end for tax purposes), quarterly, monthly, or even as surprise checks. During the audit, each item is physically counted, its condition is assessed, and the count is matched against book records. Any difference is recorded as a stock adjustment entry — either surplus (excess stock found) or shortage (missing stock). Banks often require stock audit reports when providing working capital loans.
Your medical store in Varanasi conducts a quarterly stock audit. Book records show 500 strips of Paracetamol, but physical count reveals only 480 strips — a shortage of 20 strips worth Rs. 1,000. For Cough Syrup, books show 200 bottles but you find 210 bottles — a surplus of 10 bottles worth Rs. 850. You create stock adjustment entries: reduce Paracetamol by 20 strips and increase Cough Syrup by 10 bottles to correct your records.
At minimum, conduct a full stock audit once a year at financial year-end (March 31). However, monthly or quarterly audits for high-value or fast-moving items help catch theft, damage, and errors early before they accumulate into large losses.
Yes, this is called a cycle count or partial audit. You can audit a specific category (e.g., only electronics) or high-value items more frequently while doing a full audit less often. This saves time while still maintaining accuracy for critical inventory.
First, investigate the cause — check for unrecorded sales, returns, damage, or theft. Document your findings, create a stock adjustment entry with the reason, and take corrective action such as improving security, training staff, or tightening the billing process.
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