An exception count is a process that is often used as part of physical inventory control. This strategy involves verifying the number of units of each item carried in the inventory stock with a physical count, noting any differences or exceptions that the physical count reveals when compared with the inventory count that is currently reflected in the inventory records. The exception count can be used to reconcile the physical and the book inventories, and also help to minimize the potential for ordering more of a particular item that is necessary.
Conducting an exception count calls for physically inventorying the number of units of each item maintained. In order to conduct the count, an individual or a team of individuals will utilize a printed copy of the current inventory, including the number of units that are supposed to be in stock as of a certain date. Since inventory items are usually assigned a specific storage space within the warehouse, someone will go to that designated space and physically count the number of units on hand. If the physical count matches the count reflected in the book inventory, there is no exception. Should the two counts not match, this results in flagging the item as being an exception.
Periodically conducting an exception count is important for several reasons. Reconciling what is showing in the inventory records with what is actually on hand helps to eliminate the possibility of running out of essential parts or materials needed to keep the operation going. If the exception count finds that there are more units on hand than reflected in the book inventory, this allows the chance to adjust the books accordingly and revise the ordering instructions for that particular item, a strategy that helps to prevent an inflated inventory that in turn triggers a higher tax obligation.
The frequency involved with conducting an exception count will vary, based on the size and nature of the business operation. A small business that tends to operate with a minimum of inventory may find that conducting the count once or twice each year is sufficient. For large operations that see a constant turnover in raw materials and machine components, it is not unusual for an exception count to be conducted at least once per quarter. As long as the count occurs often enough to prevent the business from experiencing problems with an inflated inventory or having to curtail operations because important materials or parts were not on hand when they were thought to be in inventory, the frequency can be considered adequate.
