Inventory Accounting Close Checklist

Walk the receiving dock with the warehouse lead and confirm every receipt with a packing slip dated on or before period-end has been booked. Late posting of received-not-invoiced (RNI) goods is the most common cut-off error and causes inventory and accrued-AP to disagree at close.

Restrict permissions on inventory transactions in QuickBooks, NetSuite, or Sage Intacct so warehouse staff cannot post backdated adjustments while close is in flight. Communicate the freeze window to operations the day before.

Export the SKU-level perpetual listing as of period-end with quantity on hand, unit cost, and extended cost. Save the file as the close-package source of truth — every later reconciliation ties back to this report.

A-items (top 80% of cost) counted monthly; B-items quarterly; C-items annually. Hand the count sheets to a counter who is not the same person who maintains the bin — segregation of duties is a basic ICFR control auditors test.

Match counted quantities to the frozen perpetual listing SKU by SKU. Any variance over 2% of unit count or $500 extended value gets recounted before posting. Recounts must be performed by a second counter.

Aggregate net variance across all counted SKUs. If the absolute net is above the close-level materiality (typically 5% of inventory or the threshold set in the audit plan), trigger the shrinkage write-off path. If below, document and roll forward.

Every recount sheet, signed by both counters, is filed in the close binder. Auditors trace a sample of cycle counts back to source sheets — missing recount documentation is a recurring management-letter comment.

Sum the perpetual listing's extended cost and tie to the GL inventory account ending balance. Document any timing differences (in-transit, consignment, RNI) on the reconciliation workpaper. The unreconciled remainder must be zero before close.

FOB-shipping-point goods on the water belong on the buyer's books; FOB-destination goods do not. Pull the open-PO report for goods shipped before period-end and confirm Incoterms with the freight forwarder. Consignment goods at customer locations stay on the company's books until sold-through is reported.

Inbound freight, duty, and brokerage are capitalized into inventory cost under ASC 330, not expensed to freight-out. Pull the period's freight invoices and confirm the costing module allocated them across the receiving SKUs. A common error is freight booked to a P&L account when the warehouse module is misconfigured.

Method (FIFO, weighted-average, or standard) must be consistent with the prior period and disclosed in the financial statements. A change in method is a change in accounting principle requiring restatement and disclosure — confirm no SKU has silently switched methods after a system upgrade.

Pull purchase price variance (PPV) and usage variance reports for the period. Allocate variances between inventory on hand and COGS based on inventory turnover; capitalizing 100% to inventory overstates assets when turnover is high.

Under ASC 330-10-35, inventory is carried at the lower of cost or net realizable value (selling price minus completion and disposal costs). Pull recent sales prices for top-value SKUs and write down any items where NRV is below carrying cost. The write-down is recorded in COGS, not as a separate reserve.

Run the inventory aging report — SKUs with no sales in 12+ months, or stock-on-hand greater than 24 months of trailing demand, are flagged. Attach the export so the reserve calculation is auditable. Operations sign-off is required before any SKU is reclassified as obsolete.

Apply the firm's reserve policy — typically a tiered percentage by aging bucket (e.g., 25% for 12-18 months, 50% for 18-24, 100% for 24+). Compare the calculated reserve to the GL reserve balance; the difference is the period adjustment.

Debit COGS / shrinkage expense, credit inventory, for the net variance identified in cycle counts. Attach the count workpaper and recount evidence to the journal entry. Memo references the materiality threshold and counter sign-off.

Debit COGS, credit reserve for obsolete inventory (contra-asset). The contra account is presented net against inventory on the balance sheet. Attach the aging report and reserve calculation as workpapers.

Beginning balance + receipts − issues − shrinkage − write-downs ± reclasses = ending balance. The roll-forward is the lead schedule auditors request first; build it as a permanent close workpaper that ties to the trial balance.

Calculate inventory turnover (COGS / average inventory) and DIO (365 / turnover). Compare to prior period and trailing-12-month average; flag swings greater than 15% in the management commentary so the controller can address them on the close call.

Controller reviews the roll-forward, reserve calculation, journal entries, and count workpapers. Sign-off locks the period in the ERP and routes the close package to the CFO. Returned-for-rework comments must be cleared before relock.