Limited Company Year End Closing Stock

[Billett]

Hi All,

I'm full of inventory questions today so apologies.

I have upgraded my QB to include the ability to track inventory, although I do not use QB for generating the invoicing as some go out via my website or via Amazon.

I need to have my Stock Assets in the system for my year end, can I do a point in time audit of stock and put it into QB and make an adjustment either monthly, quarterly or annually to account for the sales via those platforms?

I'm assuming I just need to do an annual stock take to account for my closing balance?

Thanks

 

[Billett]

To clarify a little.

Can I do a point in time for my first year, and then going forward for year 2+ do it either monthly or quarterly.

Or for year one do I need to enter my opening stock balance from day one of the business and then show inventory levels throughout the year.

I'm assuming I just need a snapshot for the end of my accounting period with a full stock take and entry now is fine. Then in theory next year could be exactly the same, but it would be better to track it throughout the year a little better.

 

[Scalloway]

You should do a physical stocktake at the end of the company's financial year. You should have taken stock before you started adding goods as you purchased them. For control purposes I would do stock adjustments as often as you can to keep the stock record correct as you go along.

 

[Billett]

Can someone settle my mind. It's far too overactive this weekend.

For me it's my first year accounts. So I know I started with no stock this year, and I know how much stock I have.. All purchases went through QB as 'purchases'.

When it comes to my year end is it ok to just know my current stock level or do I need to go back month on month and work out all incoming and outgoing stock? Going forward I will be tracking it this way but for my first year is zero opening and x closing sufficient?

 

[Scalloway]

You need to take stock at the end of the financial year for your accounts. Just count what is on hand then track it from then on.

 

[Billett]

You need to take stock at the end of the financial year for your accounts. Just count what is on hand then track it from then on.

Thank you. I was worried I would have to go back from the zero figure and work out all incoming and outgoing stock levels based on every sale and purchase from the year.

Going forward I'll have a handle on it, just seemed like it was going to tie me up for weeks.

@Scalloway you have made someone with anxiety extremely happy today so thank you

 

[DontAsk]

Thank you. I was worried I would have to go back from the zero figure and work out all incoming and outgoing stock levels based on every sale and purchase from the year.

You don't need to do that in year two, either. Just do another stock take at the end of year two. You can do it weekly, monthly, whenever but you certainly don't need to do it for every sale or purchase.

 

[Billett]

You don't need to do that in year two, either. Just do another stock take at the end of year two. You can do it weekly, monthly, whenever but you certainly don't need to do it for every sale or purchase.

Thanks also ?

 

[HFE Signs]

Your accounts needs an accurate stock figure for the day of your closing year, a physical stock take is the best and most accurate way.

I worked for a company many years ago where they had people counting washers, nuts and bolts - in the end, they decided it was cheaper to throw them all away as it was cheaper than paying someone to count/weigh them, totally nuts (no pun intended). With such items an estimate of value is good enough.

 

[DontAsk]

As a sixth former, doing A-level double maths, I had a job in a DIY store. At stock take they were in the habit of unrolling all the rolls of vinyl flooring to measure how much was left. I taught them how to estimate by using the average diameter of the layers on the roll, the number of layers and pi. It blew their minds when they insisted on measuring one to check, and it was correct, but I'm sure they went back to the old way the following year.

 

[HFE Signs]

As a sixth former, doing A-level double maths, I had a job in a DIY store. At stock take they were in the habit of unrolling all the rolls of vinyl flooring to measure how much was left. I taught them how to estimate by using the average diameter of the layers on the roll, the number of layers and pi. It blew their minds when they insisted on measuring one to check, and it was correct, but I'm sure they went back to the old way the following year.

I'm glad you used 'average diameter' a common mistake is to use the external diameter and of course be massively out. Well done kid

 

[Billett]

If I have a product I haven't been selling for some time and wish to get rid of, can I just exclude it from the count and therefore it's been 'disposed'?

 

[HFE Signs]

If I have a product I haven't been selling for some time and wish to get rid of, can I just exclude it from the count and therefore it's been 'disposed'?

You’d be better to sell it off cheap rather than throw it away. If it’s been purchased and not sold your accountant will ask where it went. But yes, if it’s gone then it’s not in stock

 

[Billett]

You’d be better to sell it off cheap rather than throw it away. If it’s been purchased and not sold your accountant will ask where it went. But yes, if it’s gone then it’s not in stock

Thanks. i'm accounting for it this year, just wondered what to do for its post. I could sell it cheap, but its not worth the time/effort so was planning to disposes

 

[Billett]

You’d be better to sell it off cheap rather than throw it away. If it’s been purchased and not sold your accountant will ask where it went. But yes, if it’s gone then it’s not in stock

This is what confuses me a little more.

If doing an annual stock check for example at year end how would my accountant ask me where they went. What would tally up sales of said item, against the stock shrinkage for them to query a single product? I'm just curious on this one.

Obviously in year 2 i would have to record the shrinkage against the recorded year 1 value. But as my year 1 stock take will be my opening value there wouldn't be a shrinkage.

Or should I be creating a zero start entry dated at the start of my year 1 and then an adjustment for the current stock count at year end?


I feel i'm over complicating things somewhat.

The way i was today planning to enter it was just start with nothing in QB. Create a new product, and set the opening balance as my counted value and the date as my last day of year end. I have done this for 5 products so far and see stock assets in the year end.

 

[Scalloway]

In my experience the accountant will just take the total value you provide.

 

[Billett]

In my experience the accountant will just take the total value you provide.

I'll probably just give them the value and get them to add it for me. I've been trying to do as much of my book keeping as possible. I'm likely to get a nice bill from the accountants for the questions i keep asking lol

 

[HFE Signs]

This is what confuses me a little more.

If doing an annual stock check for example at year end how would my accountant ask me where they went. What would tally up sales of said item, against the stock shrinkage for them to query a single product? I'm just curious on this one.

Obviously in year 2 i would have to record the shrinkage against the recorded year 1 value. But as my year 1 stock take will be my opening value there wouldn't be a shrinkage.

Or should I be creating a zero start entry dated at the start of my year 1 and then an adjustment for the current stock count at year end?


I feel i'm over complicating things somewhat.

The way i was today planning to enter it was just start with nothing in QB. Create a new product, and set the opening balance as my counted value and the date as my last day of year end. I have done this for 5 products so far and see stock assets in the year end.

If it has minimal impact on the total stock value, I’d just not count it.

 

[Billett]

If it has minimal impact on the total stock value, I’d just not count it.

Its 28% of my total stock - monetary value is circa £1.2k, so i'm going to count it.

 

[SillyBill]

Its 28% of my total stock - monetary value is circa £1.2k, so i'm going to count it.

Do you have an accountant?

Stock revaluation and write-off is a key year end activity, assuming you make a profit it reduces the corporation tax liability for that financial year and therefore improves your future cash flow.

In December we review our slow moving stock, stock that has devalued due to market conditions, stock we will not sell/lost market for and we make a decision on each, as to whether to write off, reduce the value or keep "as is" and move on slowly the next year. You do not simply count in the year end stock take, decisions need to be made, you are to provide the best "true" value of the stock the business has at this point, and that isn't simply what you paid for it and how much you have. Given a lot can change between that point and the year end.

 

[Billett]

Do you have an accountant?

Stock revaluation and write-off is a key year end activity, assuming you make a profit it reduces the corporation tax liability for that financial year and therefore improves your future cash flow.

In December we review our slow moving stock, stock that has devalued due to market conditions, stock we will not sell/lost market for and we make a decision on each, as to whether to write off, reduce the value or keep "as is" and move on slowly the next year. You do not simply count in the year end stock take, decisions need to be made, you are to provide the best "true" value of the stock the business has at this point, and that isn't simply what you paid for it and how much you have. Given a lot can change between that point and the year end.

Thank you. Realistically I would want to write it off this year based on it being stock we dont plan to sell due to business direction changes and therefore would reduce my tax liability,

I do have an accountant, but feel i have bugged them a hell of a lot on other issues over the last week or two as I also recently went VAT registered and had a multitube of questions around that.

I feel my accountants bill will be more than my tax bill

 

[SillyBill]

Thank you. Realistically I would want to write it off this year based on it being stock we dont plan to sell due to business direction changes and therefore would reduce my tax liability,

I do have an accountant, but feel i have bugged them a hell of a lot on other issues over the last week or two as I also recently went VAT registered and had a multitube of questions around that.

I feel my accountants bill will be more than my tax bill

You have answered your own question then, the stock has zero value and is therefore written off, whatever profit you make will be reduced by the value of the stock written off and therefore you will be pay less tax.

And to answer your question about regular stock takes throughout a year, that is good practice but not a requirement. I've had very small businesses in the past where year end would be the only point we'd take much interest. The larger a business gets the more you ought to keep on top of it though, otherwise the reconciling at year end becomes a nightmare and the invariable swings difficult to square months after the fact. For instance in my mid sized SME we run a weekly stock report that gets a glance over and a monthly stock report at month end that gets a very good combing over line by line, we will highlight a few items that look suspicious/inaccurate and do a physical stock check (and adjust as needs be) and/or do a few random checks of the odd stock item for good measure. Every 6 months we will do a full physical stock check, posting the discrepanices accordingly and this includes the year end stock check.

 

[Billett]

You have answered your own question then, the stock has zero value and is therefore written off, whatever profit you make will be reduced by the value of the stock written off and therefore you will be pay less tax.

And to answer your question about regular stock takes throughout a year, that is good practice but not a requirement. I've had very small businesses in the past where year end would be the only point we'd take much interest. The larger a business gets the more you ought to keep on top of it though, otherwise the reconciling at year end becomes a nightmare and the invariable swings difficult to square months after the fact. For instance in my mid sized SME we run a weekly stock report that gets a glance over and a monthly stock report at month end that gets a very good combing over line by line, we will highlight a few items that look suspicious/inaccurate and do a physical stock check (and adjust as needs be) and/or do a few random checks of the odd stock item for good measure. Every 6 months we will do a full physical stock check, posting the discrepanices accordingly and this includes the year end stock check.

Thanks.

Yes being small it was something I didn't even think about until now. Im moving the business from a small scale ecommerce business to a wholesale business. Most of my stock has been held elsewhere where I can pull inventory reports which has been nice for this year end experience and I store some things at the business premises which i'll be looking to write off as it tends to be the stuff I cant sell.

Moving into wholesale I will need to up my game somewhat as i'll be looking to move into a warehosue in the coming months meaning stock takes in one little room will be a thing of the past.

I'd be interested in what tooling you use for doing it your way. I'm currently deep in in spreadsheets

 

[SillyBill]

Thanks.

Yes being small it was something I didn't even think about until now. Im moving the business from a small scale ecommerce business to a wholesale business. Most of my stock has been held elsewhere where I can pull inventory reports which has been nice for this year end experience and I store some things at the business premises which i'll be looking to write off as it tends to be the stuff I cant sell.

Moving into wholesale I will need to up my game somewhat as i'll be looking to move into a warehosue in the coming months meaning stock takes in one little room will be a thing of the past.

I'd be interested in what tooling you use for doing it your way. I'm currently deep in in spreadsheets

Spreadsheets are fine to start with! I suspect our costs (c. £500/month on inventory/WMS/accountancy software) are probably going to be a little beyond a start up. But we use DEAR inventory as FYI which is integrated with Xero with various bolt-ons for added functionality ontop of that. If you scale enough to be able to afford that then I'd highly recommend it as it is superb. Prior used SAGE which was a lot more expensive and in my view they hadn't moved with the times.

I imagine there are inventory software options in the £30-50 a month range aimed at and perfect for growing start ups albeit not my area of expertise. Just some basic accountancy/inventory software is all you should need for now and probably will save you a lot of time.