If your business holds stock, it’s important to do an annual stocktake to keep your records up to date. If you haven’t been managing your inventory as effectively as possible up until this point, annual stock taking can be a headache. But the good news is that with proper preparation, a periodic stocktake should be straightforward and hassle-free.
Here’s a quick guide to stocktaking and stock checking to make things easier.
What is a stocktake?
Simply put, a stocktake is a method of verifying how much inventory you have on hand at any given time. Ideally, your actual stock would exactly match your records at all times, but issues like spoilage and theft can impact your inventory. Stock taking allows you to reconcile your actual stock numbers against what’s recorded in your inventory management system.
When you buy stock, it's used to calculate Cost of Goods Sold, which typically has to be adjusted for stock not actually sold at the end of the financial year.
How to do a stocktake
To carry out an annual stocktake, it’s important to do the following:
Organize your stock – this will make your stock count procedure much easier.
Choose an optimal time – it’s usually best to carry out a stocktake outside of business hours.
Determine a monetary value for each item of stock – this will help you put a value on your entire inventory.
Update your stock records – compare your counted stock against your stock records and update accordingly.
Do I need to do a stocktake for tax purposes?
Stock taking requirements for tax purposes differ depending on the country in which you operate. Here are some examples of stocktake requirements for different regions:
Australia: If your business buys or sells stock, you need to do a stocktake to value your stock at the end of each income year if your business turnover is $10 million or more, or your business turnover is less than $10 million and the difference between your stock level at the beginning and end of the year is over $5,000.
Canada: For tax purposes, you need to value your inventory either by determining the market value of your entire inventory, or the value of individual items.
New Zealand: If you’re carrying stock you are required to do a stocktake of the cost value of your inventory excluding GST (unless it’s your first year in business and your stock’s value is under $10,000).
USA: To calculate taxable income, you must value your inventory at the beginning and end of each tax year, and your inventory practices must be consistent from year to year.
UK: If you are using the accrual accounting method to manage your books, you will need to do a stocktake at the end of the financial year.
End-of-year stocktake best practices
The best way to approach your stocktake depends on your business, but to ensure your stocktake is as accurate as possible, be sure to follow these steps:
Review open purchase orders to calculate how much incoming stock you have.
Review open sales orders to calculate how much stock you have sold but haven’t yet shipped.
Review production jobs to see how much stock is at the work-in-progress stage.
Check your POS transactions to see what you’ve sold that hasn’t yet been reflected in your stock levels.
TradeGecko makes stocktake procedures for warehouse inventory easy thanks to our sophisticated order management technology.
Enjoy a one stop inventory management solution!
TradeGecko integrates with accounting software so you can manage your inventory and financial needs in one place this tax season.