Stocktaking difference

What it means

A stocktaking difference is the gap between the actual state of assets or liabilities found at stocktaking and their balance in the books. If the actual figure is lower, it is a shortage, meaning missing assets, or damage, such as spoiled goods. If it is higher, it is a surplus.

The Accounting Act requires stocktaking differences to be booked in the accounting period that the stocktaking covers, even when they are found after year-end during a physical count in January. That way the books match reality at the reporting date.

For inventory, a shortage within natural loss allowances, such as drying out or dust loss, is distinguished from a shortage above them. The former is an ordinary expense; the latter is judged more strictly, needs an explanation and usually recovery from the responsible person.

How it works in practice

We book shortages and damage as expenses and surpluses as income. For a shortage we look for the cause: a recording error, a wrong goods received note, theft or damage. If an employee with an agreement on liability for entrusted assets is responsible, a receivable from them arises and the compensation is income.

For tax, a shortage above natural loss allowances is deductible only up to the compensation received, for example from the employee or an insurer. Exceptions are damage caused by an unknown perpetrator and confirmed by the police, or damage caused by a natural disaster.

For VAT, a shortage above the allowances requires correcting the input VAT deducted on that stock, since the goods were not used for taxable supplies. We therefore always assess stocktaking differences from a VAT angle too, not only in the accounts.

What to watch out for

The most common mistake is offsetting a shortage and a surplus of the same item without investigation. Offsetting is allowed only for mix-ups between similar items, such as sizes of the same product, and only when proven. Otherwise shortages and surpluses must be booked separately.

Regular large differences point to a process problem: missing goods received notes, issues without documents, poor measurement or theft. Rather than writing off differences every year, it is better to find the cause, for example by introducing cycle counts of selected items during the year.