As if the end of the year weren’t busy enough with holiday orders, rush shipping, and vacation days, Year-End Inventory shows up. Even if you procrastinate when it comes to record keeping, you have to count everything at least once every year.
At its simplest definition, Ending Inventory is the unsold merchandise your business has on the shelf and in the stock room at the end of your accounting year. Beginning Inventory is this same number on the first day of your subsequent accounting year.
Key Concepts to Understand
Like many inventory concepts, Year-End Inventory has both an accounting and an operational side. We’re primarily concerned with the operational side in this article. For now, keep in mind that an accurate count of your inventory is necessary for filing the tax return for your business and that there are several ways to take this count and turn it into financial numbers for your accounting. These range from simple to more complex, depending on the scope of your business.
Inventory can be counted periodically, but perpetual inventory counts are considered preferable. Usually, perpetual inventories are kept by using software that tracks your inventory numbers and adjusts them whenever sales are made or new goods become part of your stock. Computer-assisted automation can vastly speed up a year-end count as you already have a starting record. Some inventory management tools will even let you export and print your records so you have a handy sheet to start with.This changes the job to inventory reconciliation, rather than doing a new count from scratch.
When you’re counting your goods, you’ll need to tally each SKU separately. This means that your green XS t-shirt is listed and counted separately from the red XS t-shirt or the green XS t-shirt with added embroidery. These differences will be important when adding up overall costs.
Tips to Help You Handle Year-end Inventory
Beyond inventory, the end of the year can be a busy time in a lot of ways and it’s easy to feel overwhelmed before you even start. Here are some tips to make the process smooth and manageable:
● Set time aside – Dedicating time solely to taking inventory can offer breathing room and starts you off in the right mindset. That is, counting inventory just takes time. Pick a slow sales day or dedicate scheduled hours each day for a week to get it done.
● Don’t try to multitask – On a similar note to the previous point, make sure to cut out all other distractions during the inventory process. Research has shown that our brains probably can’t process two tasks simultaneously. So, uninterrupted focus is your most valuable commodity when getting an accurate count of your stock. Avoid trying to do other business tasks at the same time if possible.
● Embrace automation – Allow technology to assist whenever possible. This is easier if you’ve already adopted software that manages your inventory. Export and print your digital records to create a starting point for your count. If you’ve been keeping good records throughout the year, your job will be more about checking for accuracy than doing fresh counts from scratch.
● Consult experts as needed – If it gets complicated, don’t be shy about contacting an expert. While you probably take pride in all the hats you can wear as a small business owner, don’t hesitate to reach out to a certified accountant when you need a second opinion.
In summary, year-end inventory is a count of the goods you have out on shelves and in the stock room. This count is used to calculate accurate totals for your accounting and your business tax return. While the process may be tedious, software and good planning prevent it from becoming overwhelming.