Physical inventory count procedure

A physical count is only worth doing if the numbers can be trusted afterwards. This procedure takes a small shop, workshop or warehouse through count day in seven steps: freeze, teams, blind count, recount rule, cut-off and sign-off. It is a practical checklist, not accounting or audit advice: check the record-keeping rules for your country with your accountant.

Download the procedure as a printable PDF (A4, with a sign-off block) or print this page. Free, no email asked.

1. Before count day

Choose the date and tell everyone involved: staff, your accountant, and anyone who delivers to you. Pick a quiet day or close the shop for the count.
Name one count lead who makes the calls on the day. Write the name on the sign-off sheet.
Tidy the stock: put loose items back in their bins, label every location, and set aside returns, damaged goods and items on consignment or already sold.
Split the premises into count areas (a shelf run, a room, a bin range) and give each area a number. Print one blank count sheet per area.
Agree the rules in writing: how items are counted (singles, not cases, unless the case is sealed and labelled), what counts as damaged, and the size of a difference that triggers a recount.

2. Freeze

Stop receiving: book in every delivery up to the count, then put later deliveries to one side, unopened, until the count is done.
Stop selling stock from the counted areas, or record every sale made during the count on a list with time, item and quantity.
Stop moves between areas. If an item must move, the lead writes it down.
Save a copy of the stock system's quantities as at the freeze time. This is the figure the count is compared with. It must not change while counting.

3. Teams

Work in pairs: one person counts and says the number aloud, the other writes it down. Do not let the same person count and write alone.
Give each pair an area. Do not give people the areas they look after day to day, so a fresh pair sees them.
Brief the pairs before starting: the counting rules, how to mark damaged stock, and to ask the lead rather than guess.

4. Blind count

Use count sheets with the expected quantity left off. A counter who sees the system figure tends to confirm it instead of counting.
Write the number counted, not tick marks. Write in ink and cross out a mistake with one line and initials; never overwrite.
Count every location in the area, including backrooms, drawers, display, and stock under or behind counters. Mark each location done on the sheet.
Put a dated tag or sticker on each counted shelf or bin so nothing is counted twice and nothing is missed.
Record damaged, expired or obsolete items on their own lines. They are valued differently from good stock.

5. Compare and recount rule

Type or read each count against the frozen system quantity and work out counted minus system for every line.
Recount every line whose difference is above the threshold you agreed before the count (for example a set number of units or a set percentage, whichever you choose), and every line with a negative stock or a count of zero where stock was expected.
The recount is done by a different pair, also blind, and the second count is written beside the first.
If the two counts agree, accept the figure. If they differ, the lead counts the item a third time and that figure stands.
Look for causes before adjusting: items in the wrong location, a delivery or sale not booked, two similar items swapped, a unit-of-measure slip.

6. Cut-off

Write down the last receiving document number and the last sale or dispatch number included in the count.
Anything received after that number is not stock yet, and anything sold or dispatched before it is no longer stock, even if it is still in the room.
Hold the same list of numbers for the next count so each period starts where the last ended, with no overlap and no gap.

7. Adjust, value and sign off

Adjust the stock record once, from the final accepted counts, and keep the before and after quantities.
Value the differences at cost. The total is your shrink figure for the period: loss from theft, breakage, miscounts and receiving errors.
The count lead signs and dates the final count sheets. A second person (the owner, a manager or your accountant) reviews the differences and signs.
Keep the signed sheets, the frozen system figures and the recount notes together for as long as your country's record rules require; ask your accountant how long.
Note which categories lost most. Those are next period's cycle-count priorities.

Why a blind count and a recount rule

If the person counting can see the system quantity, the count drifts towards it. Leaving the expected figure off the sheet and recounting only the lines that differ by more than an agreed amount keeps the work small while catching the lines that matter. Choose the threshold yourself before counting starts, and write it on the sign-off sheet.

Also free: the printable inventory count sheet, the year-end stocktake checklist and the year-end inventory valuation tool.

Checked against Shopify's help pages on 1 November 2026.

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