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Running a business:
Stocktakes

Larger businesses, for whom stock control is a significant issue, operate a stock control system that enables the stock level of any particular item to be known at any time. If you have a stock control system you can check the level of your stock shown by the system against the physical stock levels at various times throughout the year.

Businesses that do not have a stock control system but do carry stock should value their stock at the year end. This involves the following procedures:

the year end stocktake

consideration of cut-off issues

finding the cost of the stock

reducing the value of the stock to its net realisable value where this is less than cost.

To ensure the stocktake runs smoothly, you should plan for it and ensure that everyone knows what is expected of them. Steps you should consider include:

preparing written stock-taking procedures

sorting the stock so that identical items are together

labelling the stock in such a way that you will be able to identify what it is (and so find out how much it cost)

making it clear the units that are to be counted (eg does one unit represent on e screw, one individual box of screws or a carton containing 100 boxes of screws)

preparing pre-printed stock sheets so that it is clear which details need to be recorded, such as stock number, stock type, description, location, quantity, quality (eg good/ damaged/ old)

counting the stock in a controlled way so that all stock is counted once and only once - a labelling system might help with this

performing the stock count at a time where there is unlikely to be any stock movement. If stock movement is unavoidable during the count, you must separately monitor and record the movements. You need to know, for example, whether the stock movement is from an area that has been counted or not.

You will need to price up the stock, and so the description noted at the stocktake needs to be sufficient for you to be able to identify the cost of the goods.

You will also need to identify any items that will be able to sold only at a price less than cost. At the stocktake you should look to identify any goods that are in poor condition, or that have not sold for some time.

You also need to be aware of the cut-off issues between stock, purchases and sales. You need to ensure that:

if you have been invoiced for goods before the year end but they have not been received because they are in transit, then they are still included in your stock (or, in certain circumstances, that the purchase invoice is excluded from your accounts)

that an accrual is made for any purchase invoices that had not been received by the year end but where the stock had been received and counted;

any goods that have been sold and invoiced but not dispatched are excluded from stock.

The appropriate adjustments can be made later, but it is important to note (at the time of the stocktake) details of the latest goods received and goods despatched.