Stock records

What it means

Stock records are the running record of inventory movements in units and in money: what came in, what went out and what is left, line by line and referenced to a document. They are an accounting record, not a storekeeper’s notebook.

Both inventory accounting methods require them. Under method B the general ledger does not track stock during the year at all, so the warehouse is the only place the balance exists, and issues are valued by the chosen method, such as FIFO.

Stock records cover only inventory the company owns. Goods held for safekeeping, on consignment or for repair may sit in the same warehouse, but they are recorded separately in off-balance-sheet records; otherwise the count shows a surplus that does not belong to the company, and issuing someone else’s goods reduces its own stock.

How it works in practice

The records are the basis for stocktaking: the counted physical quantity is compared with the recorded one and the difference is explained in the stocktaking record. Without them a count is only a list of what happens to be on the shelf, with nothing to compare against.

For goods in a customs warehouse the content of the records is set by customs rules and their form is approved by the customs office. A missing item there is not merely a shortage in the books: the goods count as removed from customs supervision and a customs debt and tax arise.

For clients using method A we compare the stock record balance with the inventory accounts in the general ledger every month. A difference usually means a goods receipt without an invoice, or an issue the warehouse recorded but the accounts did not, and fixing it in the same month is far cheaper than hunting for it at the year-end.

What to watch out for

A shortage above the normal wastage allowance is not a tax-deductible expense, and for missing goods the deducted VAT has to be repaid on top. A warehouse that is only trued up once a year at the count costs the company both income tax and VAT on goods it has long since lost.

Records that allow stock to go negative distort valuation: goods are issued before they are received and the issue is valued at the wrong price. Under a weighted average the error carries into every later issue, and the cost of goods sold stays wrong for months before anyone notices.