The value of stock at the end of the financial year is one number in the accounts, and one of the few your accountant cannot work out from the bank statements. It comes from you: a count on the right date, a value per unit, and a record that nobody changes afterwards.
A good year-end is mostly done before December. Here is the sequence, in the order it should happen.
Four weeks before: clear the open items
The count should find stock, not questions. Resolve the ones you can now.
- Receive what has arrived. Any delivery sitting in the warehouse without a record is stock the count will find and the system will not. Record every delivery against its order, on the date it arrived.
- Record the invoices you have. They do not change stock, but they fix the cost of what you received and the payment dates for the cash forecast.
- Settle supplier claims. Faulty units awaiting a replacement, replacements that arrived, claims the supplier has refused: each should be in its final state, so the value owed by suppliers is right.
- Complete or cancel open assembly jobs. Components reserved for a job that will not happen this year should be released; jobs that are finished should be completed, so the finished goods are in stock.
- Decide about dead stock. Anything you intend to write off or sell below cost should be dealt with before the valuation, not discovered by the auditor afterwards.
- Put away unassigned stock. If you track shelf positions, stock recorded as not yet shelved should be shelved before the count sheets are printed.
The week of the count
Plan the count like a stocktake, even if you cycle count during the year.
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One location at a time. Each location gets its own count, with its own sheet and its own approval.
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Freeze the location. No receiving, shipping or transfers at that location between the moment the count is created and the moment it is approved.
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Count units, blind. Counters do not see the expected figure. Differences above a threshold get a second count by someone else.
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Date the count on the balance sheet date. The corrections it posts must land on the last day of the year, not on the day in January when someone approved it.
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Keep the sheets. The auditor may ask who counted aisle C.
If the business cannot stop on 31 December, count a few days earlier or later and reconcile: the movements between the count date and the year end, which the record holds, bridge the two.
Valuing the stock
The quantity is only half the number. Each unit needs a cost, and three decisions sit behind it.
The date. Value the stock as of the last day of the year, after that day’s movements. A valuation run in January on today’s position is wrong by every movement since.
The method. FIFO, LIFO or average cost, the same one as last year. The method changes the value, so changing method is an accounting decision to make with your accountant, not a setting to try.
The cost. The cost of a unit is what it cost to get it to the shelf: the purchase price in your currency plus its share of freight, duty and other landed costs. Stock valued at supplier price alone is undervalued, and the difference lands somewhere else in the accounts.
Then export the valuation three ways, by product, by supplier and by category. The product list is for the file; the other two are the views an accountant or an auditor asks for first.
Reconcile before you close
Two checks catch most mistakes:
- The movement in value makes sense. Opening value plus purchases minus cost of goods sold should land near the closing value. A large unexplained gap is usually an unrecorded delivery or a write-off nobody entered.
- The trend is smooth. Month-end values over the year should move with the business. A month that jumps is a month with an error in it.
Lock the year
Once the figures are with the accountant, freeze them. Nobody should be able to add, edit or delete a purchase order, a delivery or a movement dated in that year without first unlocking it, on purpose and on record. A figure that has been reported must stay the figure that was reported. If something genuinely has to change, remove the lock, make the change, and lock again, with a note of why.
Two things still happen after the lock and should be allowed: invoices for last year’s deliveries that arrive late can be filed with their order, and this year’s work continues untouched.
How StockBold handles the year end
In StockBold a stock count is created per location, with an operation date you choose, so the corrections it posts land on the balance sheet date even if the count is approved in January. The inventory valuation report rebuilds the position on any date from the movement history and groups it by product, supplier or category; it uses the organisation’s method, FIFO, LIFO or average cost, and values each unit at purchase price in your currency plus its landed costs. The valuation can be exported to a spreadsheet for your accountant, and the inventory value history report shows the value at each month end for the trend check.
Year lock, in settings, freezes every purchase order, delivery, movement and value adjustment dated in the chosen year, for everyone. The method cannot be changed while a year is locked, and dates inside a locked year are refused on new movements and counts. A late invoice can still be attached to its order as a document after the lock.
Read more about stock valuation in StockBold, or the help guide on year locks.