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It is not generally necessary to employ professional stock takers to count stock although there are specialists, particularly in the pub trade, who provide a stocktaking service.  Your own staff, who know your descriptions of the goods, can probably count your stock as quickly and accurately as anybody. 

Please read our page Gross Profit and talk to us if necessary to understand the concept that you do not make profits by buying goods, that you make profits by selling them.  The reason for a stock take is to calculate the cost of goods unsold.

Planning is essential to achieve an accurate cut-off (see below), and you must allow sufficient time.  There need not be any disruption to your sales and despatch process but a concentrated effort on the stock take process will usually save time and effort.

If you have a stock control system and continuous stock records, you may be able to do constant stock checks throughout the year, but most businesses still find a physical stock count at their year end to be worthwhile.

In an ideal situation no goods would move during a stock take.  It is unlikely that that can be achieved, but you will probably know what goods are due to be received, and you can probably keep them isolated from your main stock, or marked in some way.  You may know what goods are due to be despatched during the stock take, and again isolate them so that they are not counted as stock.

If there are any goods on your premises which do not belong to you, you need to identify them so that they are not included in the stock count.

If any of your goods are not on your premises, you need to make arrangements to quantify them so that they are included in the stock count.

You will need to decide on your cut-off procedure.  You should try to achieve as near to the ideal position as possible, otherwise you will need to make adjustments to calculate the correct cost of goods sold.  If goods are included in the stock count, you need to ensure that the purchase cost is recorded in the period, and that the goods have not been recorded as sold in the period.

You need to ensure that all the goods you own are counted, but that they are only counted once.  You may wish to attach coloured stickers to stock items as they are counted in order to identify the counted items.  Will all items of a particular description be in one location?  You may have preprinted stock sheets, but it is generally best to count all the stock in an area and record that on the stock sheets, rather than move about the premises looking for stock line items from the stock sheet.  Adopting the correct direction of checking consistently is important to get an accurate stock count.

It is generally helpful for stock counters to work in teams of two, one counting the stock and the other recording the count, including the units being used, e.g. feet, metres, single units, boxes of 10 etc..

If there is more than one stocktaking team, they should each generate their own record of the stock count, either on analysis pads, or on stock lists possibly preprinted with stock codes, stock descriptions and maybe stock count units.

If any items are damaged or are obsolete stock for which the net realisable value is below cost, you will need to identify such items in the stock count, and consider their realisable value (see below).

When the physical stock count has been completed, it is usually worthwhile comparing the counted quantities with any continuous stock record, or the previous stock count to identify significant variations, and for a person who generally knows the stock quantities to review the lists as soon as possible after the count.  This may identify errors such counting in incorrect units, and enable items to be recounted where the count appears incorrect.

Having achieved an accurate count, it is necessary to establish the cost value.  This will exclude VAT for a VAT registered business recovering VAT on purchases, but include VAT if VAT is an expense of the business.

The value of stock is taken as the lower of cost or net realisable value.  The phrase "net realisable value" is used because there may be some costs to be incurred to achieve a sale, e.g. delivery costs.  Although damaged goods or obsolete stock will probably be sold at a discount, it is unlikely that the net realisable value will be below cost.  Some traders incorrectly write down the value of such stock.

The stock valuation procedure used by retailers is often based on the selling price of goods because that is easily identified during the stock count.  An adjustment must then be made to reduce the value to cost in the accounts.  This may be done by types of goods or an overall adjustment based on expected markup.

Sometimes retailers adopt a coding system to record the cost on their price tickets.  This can also be helpful when negotiating with a potential customer over discount.  You could adopt any 10 letter word which does not have repeat letters as the basis for your code and then use the first letter for 1, the second for 2 etc. and the last for 0.  This code could also show the date of purchase to identify any slow moving stock.

A spreadsheet can be a very efficient way of creating a stock record with clear links from rough count sheets to the final stock figure.  Excel, for example, has the ability to hide columns, which means the same worksheet can be used for a number of years.  There is a benefit from keeping a number of years stock records within the same worksheet, especially if you are subject to a formal audit, because you can reorganise columns to compare prices or stock quantities from one stocktake to another.  This can make identifying some anomalies quite easy, especially if you create a column to identify any variances greater than say 15% or 50% for example.

An example stock worksheet might show columns for -

Stock might be counted by individual items (unit count "Each") but purchased per thousand (cost unit "1000") so an adjustment factor of 1000 can be built into the calculation.  There the unit count and cost unit are the same, the adjustment factor will be 1.

If information such as "Bloggs Invoice 1/1/0x" is entered as the "Cost source", this is useful for checking at audit, and if any query arises.

At the next stocktake date, it is easy to insert 10 columns after the second column, and copy all the formulae but not the values from the next 10 columns using "Edit / copy" then "Edit / Paste special".  Printing columns 1 to 4 or 1 to 6 provides a proforma stocklist on which to count.

Work in progress (WIP) is similar to stock but will include a labour element, if not be all labour.   Financial Reporting Standard 5 (FRS5) application note G and Standard Statement of Accounting Practice 9 (SSAP9) determine when profit can be realised, but is dealt with after the raw units have been calculated.

Where WIP includes materials, it may be necessary to count them as though they were raw material.  All the raw material for a product may have been drawn out of store before any assembly has taken place.  Ideally there is a record of labour hours expended to bring a product to its present state, but where that does not exist some estimate of those hours, or percentage complete should be recorded.

Where WIP is significant it is important to take advice, well in advance of the count date, on the method that will be used to record it and to value it.

Reminder - disclaimer applies. Please feedback your comments.  This page was last modified 28 July 2004.