The end of Financial Year approaches and most businesses would typically be planning and organising their annual stocktake. Other companies may do one or several interim stocktakes during the year in order to better monitor their inventory and/or minimise the disruption of a full stocktake.
A stocktake is the verification of the items physically held in inventory (also called stock). Both the quantity and the condition of each item are checked. The purpose of a stocktake is to confirm that the real physical inventory of a company reconciles with the theoretical inventory held in the accounts.
The objectives of a stocktake are multiple:
- To remove the items that are broken, damaged or that have become obsolete;
- To learn of items that are no longer there;
- To provide valuable information on slow moving items;
- Last but not least, to reduce your taxable profit via inventory write-offs.
You would not want to pay taxes on a profit you did not make, would you?
Inevitably, a stocktake will end up with a list of discrepancies: Items unaccounted for, missing or that reduced in volume, density, quality, etc. Even the best companies with well implemented inventory procedures will have discrepancies: It is human nature or should I say it is “business nature”. Read more