Physically count the stock you hold; for FBA stock you cannot count, reconcile against the Inventory Ledger and Manage FBA Inventory reports.
2
Compare to records
Line the counts up against your recorded on-hand and note every difference.
3
Investigate the gaps
A shortfall is shrinkage, damage, theft, or an unrecorded sale; an overage is a miscount or unrecorded receipt.
4
Verify valuation
Confirm units are valued at landed cost with your consistent method, so ending inventory and COGS are right.
Frequently Asked Questions
What is an inventory audit?
An inventory audit is a systematic check that your inventory records match reality, in both quantity and value, and that the processes maintaining those records are sound. It goes beyond a physical count: it verifies on-hand quantities, confirms inventory is valued correctly at landed cost, and reviews how discrepancies arise so you can fix the causes. The goal is trustworthy inventory numbers that your reordering, accounting, and tax filings can rely on.
Andrew Erickson is the founder of Inventory Hero. He has spent years working with Amazon FBA sellers on demand forecasting, restock planning, and the cash flow side of running a private-label brand. Inventory Hero exists because every spreadsheet-based inventory system he tried eventually broke — usually right before Q4.
Post adjustment entries so records match reality, and fix the process leaks the gaps reveal.
Combine three things: physically count the stock you hold (or reconcile against Amazon's reports for FBA stock), compare those counts to your records and investigate every difference, and check that inventory is valued correctly at landed cost using a consistent method. Then review why the discrepancies occurred, since a recurring gap points to a process problem. Post adjustments so the books match reality and fix the root causes you find.
How often should you audit inventory?
Most sellers do continuous cycle counts through the year (counting a slice of inventory regularly) plus a fuller audit at year-end for accounting. High-value, fast-moving SKUs deserve more frequent checks than the long tail. Trigger an off-schedule audit whenever something looks wrong, an unexplained stockout, a reorder that felt off, or a valuation that does not tie out. Frequency should follow value and risk, not a single calendar rule.
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An inventory audit verifies that your records match reality, in both quantity and value, and that the processes keeping those records accurate are sound. The short version: it is broader than a count (it checks quantities, costs, and process), you run it as a mix of physical counts, records reconciliation, and cause review, and for FBA you reconcile against Amazon's reports for stock at Amazon. Below is what an audit covers, how to run one, and how often.
An inventory audit is more than counting units; it verifies three things:
Quantity. Do your recorded on-hand numbers match the physical (or Amazon-reported) reality? This is the physical count part.
Value. Is your inventory valued correctly, at landed cost, using a consistent valuation method? A right count at a wrong cost still misstates your books.
Process. How do discrepancies arise, and are the controls that should prevent them working? A recurring gap is a process failure, not bad luck.
Covering all three is what separates an audit from a spot check: you end up trusting not just today's number but the system that produces it.
FBA adds a wrinkle, because you cannot walk into Amazon's warehouses:
Reconcile against Amazon's reports for stock at Amazon, treating Amazon's counts as the reality to check your records against.
Claim discrepancies. Where Amazon's count is short because it lost or damaged units, file a reimbursement rather than just writing it off; a good audit surfaces exactly these.
Physically count what you hold at a prep center, 3PL, or your own space, since that stock you can actually see.
So an FBA audit is a hybrid: report reconciliation for Amazon-held stock, real counts for everything else, and valuation and process checks across both.
Continuous cycle counts through the year, counting a slice of inventory regularly so errors surface while small. Weight the cycle toward your high-value, fast-moving SKUs.
A fuller year-end audit for accounting, where a complete picture is often required.
Triggered audits whenever something looks wrong, an unexplained stockout, an off-feeling reorder, or a valuation that does not tie out.
The aim is not a single disruptive annual event but ongoing verification that keeps your numbers trustworthy the whole year.
Knowing what audits typically find helps you look in the right places:
Shrinkage. Units that are simply gone, damaged, lost, or mis-shipped, showing up as a count lower than the records.
Amazon losses you never claimed. FBA stock Amazon lost or damaged that you can be reimbursed for, but only if the audit surfaces it and you file in time.
Valuation drift. Inventory recorded at the wrong cost, often the bare invoice instead of full landed cost, which quietly misstates COGS and profit.
Phantom stock. Units in your records that do not physically exist, from a receipt logged but never arriving or a return recorded twice, which inflates your asset and misfires your reorder points.
Process leaks. A recurring gap in the same place, a particular SKU, supplier, or step, that points to a broken control rather than random error.
Put a number on it: if your records show 450 units but the count finds 432, that 18-unit shortfall at an 18 dollar landed cost is about 324 dollars to write off and investigate; five FBA units Amazon lost at the same cost is 90 dollars of reimbursement you can only claim if the audit surfaces it in time. The last one, a process leak, is the most valuable find, because fixing it prevents every future instance, while adjusting a single count only fixes today.
An inventory audit verifies your records against reality in quantity and value, and checks the processes that keep them accurate, going beyond a simple count. Run it as counts (or Amazon reconciliation for FBA), records comparison, valuation verification, and cause-fixing, weighted by value and done continuously rather than once a year. Done well, it makes your reordering, accounting, and tax numbers trustworthy. For the counting method, see physical counts; for the foundation it supports, inventory accuracy; and for the FBA restock loop those trustworthy numbers feed, restock planning.