Year-end stock work has three parts: establish what the business owns, count it reliably and value it on an appropriate basis. A stock-system total alone may not answer all three. Errors can arise from missing deliveries, goods held for customers, damaged items or prices that do not reflect current sale prospects.
In this article
- Plan the stock count
- Count and record quantities
- Review costs and damaged stock
- Reconcile the stock records
Plan the count before year end and agree the valuation approach with the accountant. The resulting file should explain quantities, ownership, costs and adjustments clearly enough for someone who was not present at the count to follow it.
Define what is included
List stock locations: premises, warehouses, vehicles, external fulfilment centres and goods held elsewhere. Identify stock held on behalf of another party separately. Physical possession and ownership are not always the same thing.
Review goods in transit, consignment arrangements, returns and deliveries close to the year-end date. Give the accountant the relevant contracts and delivery evidence where ownership or timing is unclear. Do not include an item simply because a box is on your shelf.
For manufacturers, identify raw materials, work in progress and finished goods. Part-completed work may require a supported assessment of quantities and costs, rather than a guess based on expected customer selling prices.
Organise a controlled count
Prepare numbered count sheets or a controlled digital process. Identify each item by code and description, record the unit of measure and separate damaged or obsolete items. Counting boxes when the system tracks individual units can create a large difference without any actual stock loss.
Where possible, pause movements during the count. If trading continues, record incoming and outgoing quantities so nothing is missed or counted twice. Count high-value or unusual items again and investigate large differences before approving adjustments.
| Count control | Evidence to retain |
|---|---|
| Locations covered | Location list and responsible people |
| Quantity recorded | Dated count sheets with item codes and units |
| Movements controlled | Delivery and dispatch log during count |
| Differences checked | Recount result and explanation |
| Condition assessed | Damaged or slow-moving item notes |
| Approval completed | Reviewer and final adjustment record |
Avoid giving counters an expected quantity that encourages them simply to confirm the system. Independent counts and targeted recounts help distinguish genuine variances from transcription errors.
Connect the count to the year-end date
If the count happens before or after year end, reconcile movements between the count date and the reporting date. Keep purchase, delivery, dispatch and return records supporting that bridge. Number the movement records and identify transfers between counted locations, so an internal transfer is not mistaken for an additional purchase or customer dispatch.
Illustrative example: a product has 80 units counted two days after year end. Between year end and the count, 30 units were received and 10 dispatched. Assuming no other movements, the year-end quantity is 60: 80 minus 30 plus 10.
This calculation only works with complete and reliable movement records. If returns or transfers were omitted, the apparent precision is misleading. Choose a count date and process that the business can support.
Value stock with supported costs and recoverability
For ordinary inventories within its scope, FRS 102 paragraph 13.4 uses the lower of cost and expected selling proceeds after completion and selling costs. Confirm the applicable framework and any specialist exceptions with the accountant.
Illustrative valuation: 100 units cost £10 each. They are now expected to sell for £8 each, with £1 per unit needed to complete and sell them. The supported recoverable amount is £7 per unit, so the simplified value is £700 rather than £1,000.
Retain evidence for the expected selling price and costs, such as recent sales, approved clearance prices and completion estimates. An arbitrary blanket reduction can be as unreliable as ignoring damaged stock altogether.
Cost records also need checking. Identify purchase discounts, freight and production costs where relevant, and use the agreed costing method consistently. Do not value everything at retail selling price merely because that price is easy to export.
Finish the stock file
Keep the quantity reconciliation, valuation schedule, condition adjustments and approval together. HMRC’s company records guidance includes year-end stock and stocktaking records, so preserve the count evidence as well as the final total.
Explain recurring variances to the person managing inventory. They may point to unit errors, unrecorded waste, missing returns or weak movement controls. EPOS annual accounts services can be discussed around the year-end valuation, supported by bookkeeping that keeps stock movements and purchases traceable.