Inventory of stocks: count, reconcile and value

A stock total may appear precise while several questions remain open: are certain items held by a subcontractor, damaged, reserved for a customer or already sold? To make the inventory reliable, the count must be organised and the quantities understood. Valuation comes afterwards, with the appropriate supporting documents and rules.

Define what must be counted

List the locations and categories: warehouse, shop, workshop, goods in transit, goods entrusted to a third party and items held on behalf of others. Not all goods physically present necessarily belong to you. Conversely, some goods belonging to you may be located elsewhere. The count must therefore be accompanied by an analysis of the scope.

Also identify returns, defective items, work in progress and batches that are difficult to distinguish. Prepare references that are sufficiently precise to avoid confusing two models or units of measurement. A box, an item and a kilogram cannot be added together without a convention. Request the necessary confirmations from third parties holding your goods.

Organise the day of the count

Divide the locations into areas, assign teams and appoint a person responsible for questions. Define the treatment of incoming and outgoing goods during the count: temporary interruption, separate area or specific tracking. Without this arrangement, a delivery may be counted twice or never included in the count.

Keep a record of the date, area, person who counted and units used. For sensitive references or significant discrepancies, plan a second count. The arrangements must be proportionate to your organisation, but sufficiently clear for an external person to understand how the figures were obtained.

Reconcile theoretical and physical quantities

Compare the result with stock records. A difference may result from an incorrectly recorded receipt, a sale that was not deducted, a unit error, breakage or loss. Investigate the cause before posting an overall adjustment. Inventory becomes more reliable when the discrepancy is explained and the process at the source of the problem is corrected.

Keep the data before correction, the result of the recount and the approval of the adjustment. For an activity that transforms materials, distinguish normal process losses, scrap and anomalies requiring investigation. A recurring discrepancy for the same reference is a management signal: it may reveal a data entry or organisational issue rather than an isolated incident.

Prepare the cost components

Quantities are not enough to obtain an accounting value. Gather purchase invoices, discounts, costs and relevant production components. Have the professional confirm the appropriate method and the costs to be retained. A selling price displayed in a shop is not automatically the value to be recorded for stock.

Explain changes in sourcing, manufacturing or product range that may affect comparisons. Where similar items were acquired at different prices, the chosen method must be consistent and documented. Do not change the convention simply because another one produces a more favourable result at year-end.

Identify goods whose value needs to be reviewed

Report items that are damaged, obsolete, incomplete, expired or no longer sold under normal conditions. Keep the information explaining this situation: physical condition, sales history, returns, restrictions on use or a decision concerning the future of the product range. The professional may review a potential impairment.

Significant age alone does not prove a total loss of value, and a recent item may already present an issue. The analysis must remain tied to the facts. In the event of destruction, donation or sale at a reduced price, have the decision and its consequences documented before permanently removing the items from the records.

The table to take action

Your preparation checklist

• List all locations, including stocks held by third parties.
• Separate your goods from those held on behalf of others.
• Set the references, units and movement tracking during the count.
• Keep count sheets or exports and approvals.
• Investigate discrepancies before adjustment.
• Document costs, damage and items with no identified outlet.
• Submit the conclusions for the year-end closing file.

Frequently asked questions

Is a computerised inventory sufficient?

The system provides a theoretical position. Controls must be defined to reconcile it with reality and discrepancies must be documented, according to the organisation and the business's obligations.

Does no discrepancy mean that the valuation is correct?

No. The quantity may be correct while goods are damaged, do not belong to the business or require a value analysis.

Can all stock be valued at the selling price?

Do not use it as a general rule. Have the appropriate method and costs determined according to the accounting framework, the nature of the goods and their situation.

Useful terms in this guide

• Physical inventory
• Inventory
• Impairment
• Year-end closing

Questions to ask the professional

• Which valuation method is appropriate for our activity?
• What evidence must be gathered for damaged or obsolete items?
• How should goods in transit and those held by a third party be treated?

To clarify the engagement to be entrusted, also consult our accounting page.

What about your situation?

Prepare a small pilot area before the full inventory: you will be able to test the units, count sheets and approval process. If you wish to organise the file or review the valuation, look for a professional in the directory of professionals and provide them with your stock categories and the difficulties already identified.