Question

Internal controls that should be applied when a business takes a physical count of inventory should include:

1) All of the others.
2) Second counts by a different counter.
3) Prenumbered inventory tickets.
4) Counters of inventory should not be those who are responsible for the inventory.
5) Counters must confirm the validity of inventory existence, amounts, and quality.

Answer 1

Internal controls for inventory counting include combined application of all mentioned methods, second counts by another individual, using prenumbered inventory tickets, segregating duties of count personnel from those responsible for inventory, and verifying the validity of the inventory.

Step-by-step explanation:

When a business conducts a physical count of inventory, several internal controls should be in place to ensure accuracy and integrity of the count. These controls include:

1. All of the others - implying that all mentioned controls should be applied collectively.
2. Second counts by a different counter, to verify the accuracy of the initial count.
3. Use of prenumbered inventory tickets, which helps in tracking and preventing any counts from being overlooked or recorded multiple times.
4. The individuals who count the inventory should not be those who are responsible for the inventory, to avoid any potential conflict of interest.
5. Counters must confirm the validity of inventory existence, amounts, and quality, ensuring that the physical inventory matches the records.

This process is critical in providing a precise count of inventory, similar to how certain measurements—like counting eggs in a carton—offer an exact number. However, measurements derived from counting are subject to uncertainties due to limitations of the measurement process itself.