QB POS: How to perform a Physical Inventory

Please read this article in its entirety before starting the counting process. 

Physical Inventory Overview

A physical inventory is the process of verifying or correcting the on-hand item quantities in your Point of Sale inventory by conducting a physical count.

It is recommended that a physical inventory be done after initially entering your inventory when first starting to use Point of Sale and periodically thereafter.

Conducting a physical inventory involves going through the store and recording the actual item quantities on hand. Counts can be recorded on a printed Store Count worksheet or scanned into the optional physical inventory scanner, and then transferred to Point of Sale.

The entire store does not have to be counted at the same time. You may find it easier to conduct your physical inventory by department, aisle, or some other discreet physical sections, entering counts and saving for one section of your store at a time. A physical inventory can be saved as you go and then inventory updated when you are done. Point of Sale provides several ways for you to review changes before updating inventory and alerts you if a new transaction has affected an item between when a count was entered and inventory updated.

You can review or reverse the last updated physical inventory.

(Pro) A physical inventory is for one store only. When a remote store updates a physical inventory, quantity adjustment memos are automatically created and sent to Headquarters during the next Store Exchange. Headquarters can create and update a physical inventory for itself or for any store.

Starting or Continuing

To start or continue a physical inventory:

  • Select Start Physical Inventory or Continue Physical Inventory from the Inventory menu.
  • If you are Headquarters in a multi-store configuration, select the store for which you will enter physical counts.

Basic Steps

These are the basic steps to complete a physical inventory. Use the links on this page for specific instructions to complete a step.

  1. Select Start Physical Inventory from the Inventory menu.

(Pro Headquarters) Enter the Store for which you are entering counts.

  1. Physically count item quantities on hand using one or both of these methods:
  • Print a Store Count Worksheet and take it with you through the store recording counts. Select Run a Report † PI Worksheet from the I Want to menu. Modify the report as necessary to display and group your items in a manner that makes sense for counting in your store.
  • Use the optional QuickBooks-approved physical inventory scanner to go through your store scanning item bar codes and entering counts. Since the physical inventory scanner is portable, you can move freely around your store and scan thousands of items in one session. (physical inventory scanner sold separately)
  1. Transfer your counts to Point of Sale by:
  • Using the Add Counts by Hand option. This is usually the fastest manual way to enter counts, even if an item is counted several places in the store on different worksheets. Enter an item identifier (UPC, alternate lookup, or item number) and then the count, pressing <Enter> after each entry. Point of Sale consolidates multiple entries and then transfers the counts to the Physical Inventory window.
  • Entering counts directly in the Counted column on the Physical Inventory This is convenient for entering a small number of items or items that are grouped together, but may be time consuming if the same items are scattered throughout your store. Tip: Filtering or sorting the list on this window can help make entry of counts faster.
  • Upload counts from the portable scanner.
  1. Review your counts and the totals summary displayed on screen and, if applicable, select the Set all items not counted to zero. This setting ensures that all inventory items for which no physical count was entered are zeroed out when you update inventory.
  2. Select Apply Changes to Inventory to update your inventory on-hand quantities with the counted quantities.

Notes for Basic Steps

  • You can choose Save & Continue at any time to pause in your physical inventory. After saving you can exit and return later to finish. Choose Continue Physical Inventory from the Inventory menu to resume.
  • If transactions affecting the quantity of previously counted items occur during a physical inventory, the items are flagged on the Physical Inventory window and you are alerted. You should recount these items.
  • If you have entered counts but wish to cancel them and start again, select Clear Counts and Restart from the I Want To menu.
  • If your computer loses power or crashes during a physical, Point of Sale retains the counts you have entered to that point and automatically recovers them for you.
  • If necessary, you can select Print Tags from the Print menu to create new tags for items as counting.
  • (Pro) If you use multiple units of measure for some of your items, read the specific instructions for counting them.

Count Items with Multiple Units of Measure

Point of Sale maintains on-hand inventory counts by the base unit of measure (though quantities are also displayed in your other units for convenience). When taking a physical inventory count, you can enter counted quantities by other units, but Point of Sale always converts the count to your base unit before updating inventory.

The general rules for entering and displaying counts with these items are as follows.

 Main Physical Inventory Window

  • If you enter counts directly on the main PI window, they must be entered in your base unit of measure.
  • Counts transferred to the main PI window from the Add Counts by Hand window or a physical inventory scanner are converted and displayed as base unit counts, no matter which unit the counts were entered as.

Add Counts by Hand Window

  • As you enter items and counts, change the Unit of Measure field entry as necessary to reflect the unit of measure actually counted. This field will default to the unit associated with the entered UPC or alternate lookup value if they are unique for each unit, or to your base unit of measure if not.

Note: If you have selected the Add Item option, you cannot change the Unit of Measure field entry. The count is assumed to be 1 (one) for the unit identifier entered.

  • If entering counts by a unit other than the base unit, the equivalent number of base units is displayed in the Base Unit Count field for confirmation.
  • No matter which unit the count is entered as, it is converted and added to the count list in terms of the base unit. In the example shown, a case identifier has been scanned and a quantity of 8 cases entered. The equivalent base unit count for 8 cases is 112 bottles which is displayed in the Base Unit Count field and the item count list.

Physical Inventory Scanner

If you have a unique UPC or alternate lookup (ALU) identifier for each unit of measure and print tags with those barcodes, when scanning them the quantity entered is converted to an equivalent quantity of base units. If each unit does not have a unique bar code, the quantity entered is assumed to be for your base unit. As you scan and enter quantities, be aware of and enter the counted quantity in accordance with this standard and based on your bar code type.

Use a Store Count Worksheet

 

Printing a store count worksheet or worksheets is the most common way of recording physical inventory counts if you don't use a physical inventory scanner.

  • You can filter your physical item list by logical groupings, such as by department, and print a worksheet for each so several people can be counting simultaneously or so can you split the work over multiple sessions
  • The worksheets are generated as Point of Sale reports and are customizable to include the items and layout that works best for you
  • Changes you make to the columns and other display options are remembered and used until you change them again

To print store count worksheets:

  1. With the Physical Inventory window open, select:
  • PI Worksheet from the Print menu. When run from here, the worksheet will automatically include only the items currently displayed in the filtered Physical Inventory item list. You can customize other display options.
  • Run a Report † PI Worksheet from the I Want to menu. Using this option allows you to customize the report as needed, including the items included.

The report is run and displayed on-screen.

  1. To add/remove columns or make other changes, select Modify or a specific customization option from the I Want To menu.
  2. When satisfied with the layout, select Print.
  3. Repeat to create worksheets for other item groupings, if needed.
  4. Go through your store, recording item counts on  the worksheets.
  5. Transfer the item counts to Point of Sale using the Add Counts by Hand option or enter them directly in the Physical Inventory window item list.

Add Counts by Hand

The Add Counts by Hand window is an efficient way to manually transfer item counts from a store count worksheet to Point of Sale. There's no need to enter counts in any particular order and Point of Sale will combine the counts of an item if entered multiple times.

To enter item counts using the Add Counts by Hand window:

  1. With the Physical Inventory window open, Select Add Counts by Hand from the I Want To menu.
  2. Select the preferred workflow sequence for item entry in After pressing Enter key:
  • Select Go to quantity field to enter an item then enter the counted quantity, then another item, etc.
  • Select Add item to enter one item after another quickly, each with a quantity of one. The cursor never moves to the Quantity field with this choice. This might be a good choice if you are scanning each and every item unit to enter them.
  1. Scan or enter an item identifier (UPC, Alternate Lookup, or Item #) and press <Enter>. Audio and visual warnings are given if an unrecognizable identifier is entered.

The program will search items in the order shown above. The first match to the entry is listed, e.g., if you have an item with an Alternate Lookup that matches an Item #, an entry matching both will cause the item with the Alternate Lookup match to be listed.

  1. If you selected Go to quantity field in step 2, enter the counted quantity and press <Enter> or click Add.
  2. Repeat Steps 3 and 4 until you are finished entering all the items and their counts.
  3. Select Save. The counts entered are transferred to the Physical Inventory window.
  4. When all counts have been entered on the Physical Inventory window, review the counts and then proceed to updating your inventory.

Notes for Add Counts by Hand

  • You can edit entered counts directly in the Counted column on this window if necessary.
  • Use the Remove Item button at the bottom of the window to remove an item if it was entered in error.

Use a Physical Inventory Scanner

Using the QuickBooks-approved physical inventory scanner is an easy and efficient way to record and update your physical inventory. With the physical inventory scanner, you can review your inventory counts and resolve errors before you transfer the counts to your physical inventory. Since the scanner is portable, you can move freely around your store and scan the bar codes of all your inventory items. This option not only saves you time, but also helps to reduce inventory errors.

A physical inventory scanner allows you to scan thousands of units in inventory without needing to stop and upload the data. The scanner connects to your workstation via a USB interface, which makes it very convenient to use.

Using the scanner for a physical inventory includes these basic steps.

  1. Scan your items and enter counts.

        a.Turn the physical inventory scanner on by pressing the red power button in the lower right hand                corner of the unit.

        b.Press the button labeled “1” to “Run Program”.

        c.Position the physical inventory scanner in front of the UPC/barcode that you wish to scan and                   press the circular orange button once. If the scan is successful, you will hear a single beep.  If the           scan was not successful, please attempt the scan again until it is successful.

       d.Enter the quantity of the item scanned using the keypad.

       e.Press the “Enter” button (There are two “Enter” buttons on the unit. They are located to the left and           right of the circular orange button).

       f.Continue sub steps C through E to continue scanning your items.

  1. Upload the scanned data from your scanner to Point of Sale.

      a.Place the scanner into the cradle and ensure the adapter is plugged into a USB port on your                    workstation. Turn the scanner on.

      b.If the Point of Sale Physical Inventory window is not already open, select Start (or Continue)                   Physical Inventory from the Inventory menu.

      c.From the I Want To menu, select Add Counts from Scanner.

      d.Follow the displayed instructions to upload the scans from the scanner unit.

      e.When the upload is finished, you are prompted to clear the scanner memory. You can do so now, or         wait until you have finished reviewing and saving the scans. But it is important that you clear the             scanner so the same scans are not uploaded again in the next batch.

When you close the upload window, the scans are displayed for your review on the Get Scans window. The scans are not added to the Physical Inventory window until you select a save option at the bottom of this window.

  1. Review the retrieved scans.
  2. Save the scans to the Physical Inventory window.

       a.On the Get Scans window, select the Item Scans tab.

       b.If you do not want to save all of the scans, select (click or touch) the checkboxes to the left of the           items to be saved and then choose Save Selected at the bottom of the window.

       c.Choose Save All at the bottom of the window to save all good scans items to the main Physical                 Inventory window.

  1. Update inventory on-hand quantities with your counts.

      a.With the Physical Inventory window displayed, ensure that All Items is selected in the View drop-              down filter list at the top of the window. Requiring that all items be displayed is a precaution to                help make sure you are not updating inventory with "hidden" entries.

      b.Select Apply Changes to Inventory. A confirmation window is displayed.

      c.Select Yes to update inventory quantities.

      d.At the prompt, specify if you would like to run one of the physical inventory reports.

  1. Clear scans from the physical inventory scanner unit, making it ready for the next scanning session.

      a.Turn the scanner on.

      b.Press Esc repeatedly until at main menu, if not already there.

      c.Select Utilities from the main scanner menu.

      d.Select Clear Records.

      e.Press 1. All to clear all scans from memory, or 2. Last Collected to delete the last scan only.

      f.Press 1. Yes to confirm or 2. No to cancel.

You can use the physical inventory scanner in conjunction with manually entered counts. When you update your physical inventory, the on-hand quantities are adjusted in your inventory for all item counts on the Physical Inventory, regardless of how they got there.

Review Counts before Updating

It is highly recommended that you review your physical inventory counts before updating a physical inventory. No matter how you've entered your item counts, they all end up in the item list on the main Physical Inventory window. From this window, you have several options for reviewing your counts to help determine if investigation or recounts are necessary before updating your inventory with the counts.

  1. Do you need to set all items not counted to zero (0)?

When updating inventory with your counts, only the items with a count entered will be updated. It is important to enter a zero for items that are out of stock during the count so that your inventory is updated accordingly. You can enter a zero manually for these items or you can select the checkbox labeled Set all items not counted to zero to accomplish this in one step.

Do not use this option if you are counting and updating inventory for only a portion of your store (such as for one department). All items in your inventory that do not have a count entered are set to zero, not just those currently displayed in the Physical Inventory item list. Always review the results before updating inventory. Clearing the checkbox before updating will remove the zero counts.

  1. Recount items whose quantity may have changed since starting.

While it is not recommended, sometimes a physical is done while your store is open and you continue selling. Or maybe you have started, saved, and restarted a physical with a period of sales between. Point of Sale will track and alert you when any transaction (receiving, sale, adjustment, transfer) affects items you have already counted. This gives you an opportunity to recount the item(s) in question before updating your inventory.

  1. Review the physical inventory difference totals.

At the bottom right of the window is a summary of the differences in quantity, price, and cost of the counted items compared to what was expected. If the numbers are way off what you expected, review the counts in the item list looking for large discrepancies.

Tip: Filter the item list by Differences Only to quickly find suspect counts.

Updating Inventory

Important: If you haven't already done so, review your item counts before updating inventory.

 When all of your counts have been entered and reviewed, use this procedure to update inventory on-hand quantities to the values you have entered.

  1. With the Physical Inventory window displayed, ensure that All Items is selected in the View drop-down filter list at the top of the window.

Requiring that all items be displayed is a precaution to help make sure you are not updating inventory with "hidden" entries.

  1. Select Apply Changes to Inventory.

A confirmation window is displayed.

  1. Select Yes to update inventory quantities.
  2. At the prompt, specify if you would like to run one of the physical inventory reports.

Review or Reverse the Last Physical Inventory

Note: Only the last updated physical inventory is saved and can be reversed. Each time you update inventory with count changes, that update replaces the previous saved physical.

Point of Sale allows you to go back and review the last updated physical inventory. You can print reports and even reverse the effect the physical had on your inventory.

Access the options for a previous physical from the I Want To menu:

  • Select Show Previous Physical to display the information from the last physical in the Physical Inventory window.
  • Select Show Current Physical to return to the new physical.
  • Select Run a Report and then select one of the available PI reports with (previous) in its name.
  • Select Reverse Previous Physical to "undo" the changes the physical had on your inventory quantities. This option reverses the quantity memos that were created when the physical was originally updated. If the previous physical is reversed, the options to access it are removed from the I Want To menu.

Physical Inventory Reports

Three physical inventory reports can be viewed or printed.

  • PI Differences Report – Includes only those items whose counted quantity was different than the expected quantity (on-hand quantity from inventory before physical). This report includes a list of items and differences in quantity, price, and cost.
  • PI Detail Report – Similar to the differences report, but includes all counted items (including those with a zero entry).
  • PI Store Count Worksheet – This report is intended as a working document on which you record your item counts while doing a physical inventory. More information.

The PI differences and detail report are also available for the last updated physical inventory as well as the physical in progress.

To access the PI reports:

  • With the Physical Inventory window displayed, select a report from the I Want To menu or the Print menu.

Notes for Physical Inventory Reports

  • These reports are available only from the Physical Inventory window. They cannot be accessed from the Report Center or main Report menu.
  • Other than customizing the store count worksheet, these reports cannot be filtered, memorized, or added to the Report Dashboard.
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