Stock surplus

What it means

A stock surplus is what happens when the physical count finds more units or kilograms than the books show. The gap between the count sheet and the recorded balance is an inventory difference: it has to be explained and posted, not typed over.

It is the mirror image of a shortage, but it is no cause for celebration: a surplus almost always means a recording error, an unposted receipt, a wrong unit of measure or a wrong issue from the warehouse. It goes to income and lifts the tax base.

An inventory surplus can concern assets other than stock, such as cash in the till or tangible fixed assets missing from the register. It is most common with stock, though, because stock moves every day and any error in a goods received or issue note shows up only when things are physically counted.

How it works in practice

A stock surplus is valued at fair value as at the date of the stocktake, meaning a market price or another basis the Accounting Act allows; replacement cost, which older handbooks still name, is no longer in the Act. The count committee describes it in the inventory record and the bookkeeper traces the cause through the stock records, meaning the goods received and issued notes.

If the surplus exists only because an issue or a receipt was never posted, the original entry is corrected and there is no income at all. Under method B the difference surfaces only at period end, so the errors appear late and are harder to trace.

If the count finds goods the company has received from a supplier whose invoice has not yet arrived, that is not a surplus but an uninvoiced delivery. We book it as a liability and clear it when the invoice comes; booked as a surplus, the same goods would first be taxed as income and then paid for as well.

What to watch out for

The usual mistake is netting a surplus against a shortage so that the difference looks like zero. The two can be settled against each other only by way of exception, where the company proves that similar kinds of stock were unintentionally swapped in the same count; without that proof an audit taxes the surplus as income and disallows the shortage above the norm, so the company pays on both sides.

Repeated surpluses of the same items can point to purchases without documents. In a tax inspection they raise the question of where the goods came from and whether they are also being sold off the books, and the tax office then goes through eKasa and sales documents for the whole period, not just the difference itself.