December is a popular financial year end, which means that it is stocktake time for many businesses.
Counting stock is not on many people’s list of favourite things to do, but it can be a vital task to ensure accuracy and integrity in the year end financial accounts.
Over the years, we have been involved in the stocktakes of many businesses and have counted a wide range of products – steel slabs, sacks of plastic granules, industrial valves and gaskets and electronic components, and this experience has led us to compile our top tips good stock take.
A Stock Take is a method of inventory management to identify any mismatches, usually before a year-end so that the accounts are up-to-date. This is relevant only to businesses with products that require to hold inventory, such as a designer shoes.
The purpose of a stock take is to verify inventory numbers, and accurately portray the business's numbers in financial statements and accounting records. It can also be very useful when controlling inventory during business and supplier changes.
If you are verifying stock to a list, then verify both ways.
Mark the stock that you have counted. Use something like stickers or spray paint or marker pen, whatever works for your stock.
If you are counting stock from scratch and creating a list, then ideally use pre-printed sheets with the names of the various types of stock, so that just the quantities counted have to be completed.
If possible, freeze stock movements whilst the count is going on, as it is hard to count a moving target. Ensure any goods received have been booked into stock before the count starts, then ensure anything else that is received is kept in a holding area and not booked in until the count is finished.
Counting stock can be harder that it sounds. It can be tricky to keep focused and to concentrate for a long period of time. So break up the count into manageable chunks, and take some breaks. Not everyone is good at counting, and managers are often particularly poor at it.
Once the stock is counted and you know how much of everything you have, you will also need to value it. Stock should be valued at the lower of cost of net realisable value. This really means that the value of your stock is what you paid for it, unless it has become damaged or obsolete or has suffered wear and tear, in which case you value it as whatever someone will pay you for it.
The output of your stock count will feature in 2 places in your financial statements. It will be an asset on your balance sheet, and it is also used to calculate your cost of sales in your profit and loss account. It will impact the net assets of the business, the level of profit and how much tax is due.
If you're feeling Stock Taking is a bunch of complicated jargon, and would rather spend your time in another area of the business, you could hire someone to manage it for you. At JR Management Accountancy, we have a part-time Financial Director service. We look at business strategy as well as improving the profitability of your businesses, looking at various areas. Read here for more information, and if you're interested, contact us at info@jrma.co.uk or call us at 01905 796512.
Refer to the government website in regards to legal obligations of stock takes. This includes the OTS evaluation and stock take notes, this is especially relevant to corporate tax and self-employed people.
