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During the years in issue, the retailers used “cycle
counting” to conduct physical inventories of merchandise. Cycle
counting is a method of conducting physical inventories at
individual stores, in rotation, throughout the year. Most large
retail companies, including grocery and drug retailers, do not
perform a physical count of inventory on or near the last day of
the annual accounting period. Large retailers prefer cycle
counting to yearend counting because it is more accurate and
less expensive and provides better inventory control. Cycle
counting is also more efficient and practical in terms of the
availability of internal resources and outside services to
conduct physical inventories. With few exceptions, the retailers
took no physical inventories at the end of any of the years in
issue.
The retailers maintained “perpetual” or other book inventory
records (without distinction, book inventory records) from which
inventory could be determined without a physical count.
Inventory determined from book inventory records often differs
from inventory determined by physical count. When inventory is
determined from book inventory records (computed without any
accrual for estimated shrinkage), and the inventory so determined
exceeds inventory determined by physical count, the difference is
termed “shrinkage”. When book inventory so determined is
exceeded by inventory determined by physical count, the
difference is termed “overage”.
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Last modified: May 25, 2011