What is inventory reconciliation (stock reconciliation)?

Inventory reconciliation, also called stock reconciliation, is comparing the stock you physically hold with what your records say, finding out why they differ, and correcting the record. For an online brand it also means checking that each sales channel shows the right stock, and that what you received matches what you ordered and were billed for.

How do you do inventory reconciliation step by step?

First, stop or time-stamp stock movements for the items being counted. Count them, by cycle count or a full count. Compare each count with the system quantity, investigate every difference and give it a reason code. Then adjust the record with approval, and fix the cause, such as unrecorded returns or unposted GRNs, so it doesn't recur.

How do you calculate inventory variance?

Variance = physical count − system quantity, and variance % = |variance| ÷ system quantity × 100. Example: if the system shows 1,200 units and the count finds 1,176, the variance is −24 units, or 2%. At ₹350 a unit, that is ₹8,400. Calculate it per SKU and bin, then add up by value.

What causes differences between physical stock and system stock?

Common causes are goods received but not posted, returns received but not restocked, picks confirmed against the wrong item or bin, damage that wasn't recorded, and theft or loss. Unit-of-measure errors, such as recording 10 cartons as 10 pieces, cause large differences. Counting while picking is under way also creates differences that aren't real.

What is the difference between inventory reconciliation and a cycle count?

A cycle count is the counting: a few bins or SKUs on a rolling schedule, so the whole warehouse is covered over weeks. Inventory reconciliation is what follows any count, or any comparison of records: explaining each difference, correcting the record and fixing the cause. It also covers channel stock and receiving, which no count touches.

How often should an ecommerce warehouse reconcile inventory?

Reconcile after every cycle count, for the bins counted, and run a full physical verification at least once a year for the books. Compare channel stock with the warehouse daily, and reconcile receiving for every delivery. Fast-moving and high-value SKUs need more frequent counts than slow ones, and every SKU before a big sale.

How do you reconcile warehouse stock with Amazon, Flipkart and website stock?

For each SKU, compare the sellable quantity in your warehouse system with the available quantity each channel shows, and investigate any gap: an update that failed, stock held for open orders, or a listing set up for the wrong item. For marketplace fulfilment centres, reconcile their stock report against what you sent, sold and got back.

Do auditors in India check physical inventory verification?

Yes, for companies the Companies (Auditor's Report) Order, 2020 covers. Its paragraph 3(ii)(a) asks the auditor to report whether management verified inventory physically at reasonable intervals, whether the coverage and procedure were appropriate, and whether discrepancies of 10% or more in aggregate for each class of inventory were found and properly dealt with in the books.

What is inventory reconciliation?

Inventory reconciliation is the process of comparing the stock you physically hold with the stock your records show, finding the reason for each difference, and correcting the record. "Stock reconciliation" means the same thing. For an online brand, the records include each sales channel's stock figure as well as the warehouse system.

How inventory reconciliation works for an Indian D2C or omnichannel brand

Four reconciliations an online brand runs

Physical vs system: what is on the shelf against what the warehouse system says.
System vs channel: what the warehouse system says against what Amazon, Flipkart or your website shows as available.
Receiving: the purchase order against the GRN against the supplier’s invoice.
Marketplace fulfilment centre: the stock a marketplace reports holding for you against what you sent and sold.

Why does a marketplace listing show “out of stock” when the seller still has stock? Because the channel’s figure is out of step with the warehouse. Common reasons: a stock update failed or hasn’t run yet, units are reserved for open orders or on hold, the listing is linked to a different item, or the offer only counts stock held in the marketplace’s fulfilment centre. A system-vs-channel reconciliation for that SKU shows which.

The formula

Variance = physical count − system quantity.
Variance % = |variance| ÷ system quantity × 100.
Variance value = |variance| × unit cost.

Example: one SKU. The system shows 1,200 units of a serum and the count finds 1,176. The variance is 1,176 − 1,200 = −24 units, or 24 ÷ 1,200 × 100 = 2%. At a cost of ₹350 a unit, that is 24 × ₹350 = ₹8,400. Investigation finds three causes: 15 units are returns received but not yet restocked, 6 are a pick confirmed against the wrong SKU, and 3 are damaged units nobody recorded (15 + 6 + 3 = 24). All numbers are illustrative.

The process

Cut off movements for the SKUs or bins being counted, or record the exact time of the count.
Count, by cycle count for a few bins at a time, or a full count.
Compare the count with the system quantity for each SKU and bin.
Investigate each difference and give it a reason code.
Adjust the record, with approval above a set value.
Fix the cause, so the same difference doesn’t come back.

Reason codes for variances

GRN not posted, or posted with the wrong quantity
Returns received but not restocked
Pick confirmed against the wrong SKU or bin
Damage not recorded
Wrong batch or lot picked or received (batch and lot tracking)
Theft or loss: inventory shrinkage
Wrong unit of measure, such as cartons recorded as pieces (UOM)

Inventory reconciliation vs related checks

Check	What it is	How often
Inventory reconciliation	Comparing counts or records, explaining differences and correcting the record	After every count, and for channels and receiving on a schedule
Cycle count	Counting a small set of bins or SKUs on a rolling schedule	Daily or weekly
Physical stock verification	A full count of all stock, often for the books at year end	Yearly or half-yearly
Stock audit	A check by auditors that stock records and counts can be relied on	Yearly

Common mistakes

Adjusting without a reason code, so the same error keeps returning and nobody knows why.
Reconciling once a year, when differences are months old and the cause can’t be traced.
Ignoring the channel view: the warehouse can be right while a marketplace listing shows the wrong number.
Counting during picking without a cut-off, so items in totes are counted as missing.

Record match rate = SKU-bins where count equals system ÷ SKU-bins counted × 100. Example: 1,940 of 2,000 = 97%.
Net variance value = value of gains − value of losses over a period. Example: ₹2,100 − ₹8,400 = −₹6,300.
Unexplained variance = variance with no reason code ÷ total variance × 100. Example: 0 of 24 units in the example above.

What counts as an acceptable variance varies by category and business; this page doesn’t quote a benchmark.

Inventory reconciliation in the Indian context

Statutory audit (CARO 2020). The Companies (Auditor’s Report) Order, 2020 (Ministry of Corporate Affairs, S.O. 849(E), 25 February 2020) asks the auditor to report “whether physical verification of inventory has been conducted at reasonable intervals by the management” and “whether any discrepancies of 10% or more in the aggregate for each class of inventory were noticed and if so, whether they have been properly dealt with in the books of account” (paragraph 3(ii)(a)). The Order excludes some companies, including small companies and one person companies.
Write-offs and tax. Writing off lost or damaged stock affects the books and can have GST consequences. Agree the treatment with your accountant before adjusting.
Marketplace stock. Stock held in a marketplace’s fulfilment centre is reported by the marketplace. Reconcile it against your own record of what you sent, what sold and what came back.

How Fretron CommerceOS fits

Fretron CommerceOS is order, warehouse and shipping software for Indian D2C, retail and omnichannel consumer brands. It is a separate product from Fretron’s freight TMS.

Amazon, Flipkart and Shopify connections in production use as of 1 October 2026.

Bin-level accuracy is live in the Fretron CommerceOS warehouse module. Cycle counts in Fretron CommerceOS are blind counts taken on the phone and posted from the office, not updated with each scan. Stock adjustments can be recorded in the warehouse module. Stock changes are kept in a stock ledger.

Questions and answers

What is inventory reconciliation (stock reconciliation)?: Inventory reconciliation, also called stock reconciliation, is comparing the stock you physically hold with what your records say, finding out why they differ, and correcting the record. For an online brand it also means checking that each sales channel shows the right stock, and that what you received matches what you ordered and were billed for.
How do you do inventory reconciliation step by step?: First, stop or time-stamp stock movements for the items being counted. Count them, by cycle count or a full count. Compare each count with the system quantity, investigate every difference and give it a reason code. Then adjust the record with approval, and fix the cause, such as unrecorded returns or unposted GRNs, so it doesn't recur.
How do you calculate inventory variance?: Variance = physical count − system quantity, and variance % = |variance| ÷ system quantity × 100. Example: if the system shows 1,200 units and the count finds 1,176, the variance is −24 units, or 2%. At ₹350 a unit, that is ₹8,400. Calculate it per SKU and bin, then add up by value.
What causes differences between physical stock and system stock?: Common causes are goods received but not posted, returns received but not restocked, picks confirmed against the wrong item or bin, damage that wasn't recorded, and theft or loss. Unit-of-measure errors, such as recording 10 cartons as 10 pieces, cause large differences. Counting while picking is under way also creates differences that aren't real.
What is the difference between inventory reconciliation and a cycle count?: A cycle count is the counting: a few bins or SKUs on a rolling schedule, so the whole warehouse is covered over weeks. Inventory reconciliation is what follows any count, or any comparison of records: explaining each difference, correcting the record and fixing the cause. It also covers channel stock and receiving, which no count touches.
How often should an ecommerce warehouse reconcile inventory?: Reconcile after every cycle count, for the bins counted, and run a full physical verification at least once a year for the books. Compare channel stock with the warehouse daily, and reconcile receiving for every delivery. Fast-moving and high-value SKUs need more frequent counts than slow ones, and every SKU before a big sale.
How do you reconcile warehouse stock with Amazon, Flipkart and website stock?: For each SKU, compare the sellable quantity in your warehouse system with the available quantity each channel shows, and investigate any gap: an update that failed, stock held for open orders, or a listing set up for the wrong item. For marketplace fulfilment centres, reconcile their stock report against what you sent, sold and got back.
Do auditors in India check physical inventory verification?: Yes, for companies the Companies (Auditor's Report) Order, 2020 covers. Its paragraph 3(ii)(a) asks the auditor to report whether management verified inventory physically at reasonable intervals, whether the coverage and procedure were appropriate, and whether discrepancies of 10% or more in aggregate for each class of inventory were found and properly dealt with in the books.

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Last reviewed: 7 November 2026 by Fretron.

Sources

Companies (Auditor's Report) Order, 2020. Ministry of Corporate Affairs, Order S.O. 849(E), 25 February 2020, Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii); paragraphs 1(2) and 3(ii)(a). Primary source: https://www.mca.gov.in/Ministry/pdf/Orders_25022020.pdf. Access copy: Internet Archive capture of that URL, 29 Dec 2020, https://web.archive.org/web/20201229035629/http://mca.gov.in/Ministry/pdf/Orders_25022020.pdf (accessed 5 Nov 2026; mca.gov.in returned HTTP 403 that day).