CPIM Practice Exam

What is the definition of physical inventory?

1. A bookkeeping entry for stock adjustment

2. The actual stock on hand or a physical count of inventory

3. An inventory model based on production schedules

4. A digital representation of inventory in software

The correct answer is: The actual stock on hand or a physical count of inventory

The definition of physical inventory refers to the actual stock on hand or a physical count of inventory. This term highlights the importance of accurately assessing the tangible items in a company's inventory at a given moment. Conducting a physical inventory can help a business identify discrepancies between recorded inventory and what is actually available, serving as a crucial part of inventory management. The process ensures that a company's financial statements reflect the true value of its assets and helps in making informed purchasing and production decisions. In contrast, the other options focus on different aspects of inventory management but do not define physical inventory. For instance, options discussing bookkeeping entries or digital representations do not pertain to the physical items themselves, and inventory models based on production schedules are concerned with forecasting and planning rather than with the actual count of existing stock. Understanding the distinction between physical inventory and these other concepts is essential for effective inventory management practices.