How does physical inventory differ from accounting inventory?

The distinction between physical inventory and accounting inventory is centered around actual versus recorded quantities. Physical inventory represents the tangible count of assets available at a specific point in time, typically determined through an actual count of the items on hand. This process often involves going through the warehouse or storage areas to verify the number and condition of stock items.

On the other hand, accounting inventory refers to how these items are recorded in the financial records of the business. While accounting inventory can reflect the values or quantities based on accounting policies, it might not always match the real-world count due to factors such as theft, spoilage, or errors in record-keeping.

In summary, physical inventory is the real-world count that provides a snapshot of what exists in stock, while accounting inventory is a representation of that data in the company's financial statements. Understanding this difference helps businesses maintain accurate records and manage their inventory effectively.