 The quantity of inventory is determined by physically counting it. There are a number of ways to do this, but often either two separate counts are done or two people counting together. The purpose of this is to ensure the existence, quantity, and quality of the goods. But there are some special issues we need to be familiar with when it comes to determining the physical quantity of inventory. Goods in transit are inventory goods that are not currently in the inventory warehouse, but still might need to be included in the quantity of inventory. Recall that buyers of inventory take ownership of goods shipped FOB shipping point as soon as they are shipped. So items like this would need to be included in inventory, even though they are not received and physically in inventory. Likewise, goods sold and physically shipped FOB destination should be included in inventory if they have not yet been received by the buyer. Consignment goods are inventory items owned by one party, we'll call that the consignor, and sold by another called the consignee. In the case of consignment, even though the physical goods are at the consignee's business, the goods are the consignee's and should be included in the consignee's inventory count. During a physical count of inventory, it is possible to discover that some goods are damaged or obsolete. When this happens, these items should not be included in physical inventory, unless it is still possible to sell the items. If it is possible, those items usually have to be valued at a lower amount than the regular non-damaged or obsolete costs. We call this the net realizable value. In accounting the term realized or realizable means cash. So the net realizable value is the amount expected to be collected in cash. This term will be revisited in the receivables video. That concludes this short video on some of the special items we need to consider when determining the proper quantity of inventory.