We’re counting down to the holiday season and the excitement of New Year’s Eve. For most of us, this means a chance to celebrate with friends and family! For some of us, this also means its time to account for the end of year inventory. This doesn’t sound as fun as going out to your company holiday party but it is just as important a function of the holiday season for businesses with inventory.
Even businesses that are partnered with a bookkeeper and have a pretty good handle on their inventory numbers will need to cost out their end of year inventory. This physical count ensures that nothing slips through the cracks.
We’ve put together a handy guide to counting end of year inventory! Let’s go!
Know What to Count
As simple as it sounds the first step really is just knowing what to count. Everything that is on your shelves as your end of year inventory is what your beginning inventory is for the next fiscal year so knowing how to cost it helps with planning for the year.
You’ll want to count and cost your:
- Works in Progress – Anything that is sitting around almost done and ready to finished at the beginning of the year (if you create a product)
- Raw Goods – Do you have a ton of almonds just waiting to be made into granola? You don’t count these as a finished product but will want to account for them in your inventory.
- Finished Products – Anything you have waiting to be purchased.
Do not count anything that has been ordered but has not yet arrived or anything that has been sold but not yet shipped. Those are not a part of your inventory.
Cost Out Your Inventory
After you have a count of all the materials, products, etc. you will have to cost-out your inventory in order to report it to the IRS. You will take the value that you paid for all the raw materials and multiply it out for everything still in your store/warehouse. This does include things like shipping – if you bought 10,000 almonds at $1 an almond plus $25 in shipping your cost would be $10,025.00. If you bought $10,000 almonds plus $25 for shipping but also with a $50 voucher the cost would be $9,075.00. This is of course, only if you still have all 10,000 almonds sitting in your possession unsold. If you have sold almonds you will need to subtract those from the total cost. (P.S. any Accountix inventory clients feel free to reach out with questions about the costing of your goods. We cannot do the physical inventory count for you but we are happy to provide your cost per almond!)
However much you spent, that’s your cost.
Write off Lost, Damaged, or Unsellable Inventory
There will inevitably be some lost or damaged pieces of inventory. Make a note of them to pass on that information to your CPA. You will also want to make adjustments in all of your accounting systems (like QuickBooks Online or Xero) and/or your inventory management systems (like Dear Systems or Unleashed).
Analyze your Inventory Numbers to Learn more about Your Business
A good business consultant can help you identify any points where you are losing money on your inventory and how to streamline your services. Accountix’s business advisory services can help you out!