Count records to collect before closing inventory
The stock count records a firm should collect from a client before closing inventory goes into the statements, and how to request and check them.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Every year the same e-mail arrives from a retail or manufacturing client: a single figure for "stock at year end", sometimes with a spreadsheet attached, sometimes not. The firm is expected to put that figure into the statements. Behind it may sit a careful count with signed sheets and recounts, or a manager's estimate made on the last afternoon of the year.
The difference matters. Closing inventory is one of the few figures that moves profit directly, and it is one of the easiest to get wrong without anyone intending to. Asking for the right records, early and in one go, is how the firm tells which kind of figure it has been given.
Why the closing figure moves profit
ACCA's year-end adjustments article sets out the arithmetic: cost of sales is opening inventory plus purchases minus closing inventory. Closing inventory is therefore a credit to cost of sales in profit or loss and a current asset in the statement of financial position.
Put plainly, every rand, naira or shilling of overstated closing inventory is the same amount of overstated profit, and next year it reverses as opening inventory. A wrong count does not stay in one year; it distorts two.
AccountingTools notes that a business without accurate perpetual inventory records needs a periodic complete physical count, usually at the end of a month, quarter or year to coincide with a reporting period end. For many small clients, the year-end count is the only time the stock figure is actually measured.
What a proper count leaves behind
AccountingTools' inventory count procedure lists the documents to keep after a count:
- count instructions;
- signed count sheets or tags;
- tag control logs, showing every tag issued is accounted for;
- cut-off records;
- variance reports comparing the count with the records;
- recount documentation;
- adjustment approvals;
- final inventory reports.
It adds that evidence for damaged, obsolete, consigned or third-party inventory should be kept as well. That last point is often missed. Goods held for a customer, goods on consignment from a supplier and damaged stock set aside in a back room all affect what should be counted, and at what value.
The full list is a fair request for a client with significant stock. For a small client with simple stock, a reduced version still makes sense: the instructions, the signed sheets, the final listing with costs, and a note of anything excluded and why.
Cut-off and the entries made before counting
A count is a snapshot. The records it is compared with need to describe the same moment. AccountingTools advises completing all outstanding inventory data entry, including issues, returns and transfers between bins, before a physical count begins.
For the firm, the questions are:
- What were the last goods received note and the last dispatch note before the count?
- Were all purchases received before the count recorded as purchases in the year?
- Were all sales dispatched before the count recorded as sales in the year?
- Were any goods in transit at year end, and who owned them?
- If the count was not on the year-end date, how were movements between the count and year end accounted for?
Cut-off errors cause the classic double effect: goods counted as stock and also expensed as sold, or received and counted but with the purchase invoice left for next year.
Requesting the count pack through Achekam
The simplest way to get these records is to ask once, clearly, with a list. Achekam lets staff create, send and track requests to clients for documents, answers and confirmations in one RFI console, whichever screen the request was raised from. Reusable request templates live under RFI Templates, so a firm can keep a standard "year-end stock count pack" and send it to every client with inventory.
The client opens the request from a link and can upload files or folders and answer questions on the request page, and what they send is filed in that client's vault folder. Executable file types are blocked, and the default limit is 100 MB per file. Files are virus-scanned only when the server operator has configured that scanner; otherwise structural checks run and the record says so.
The request can mix documents and questions, which suits a count pack well. Ask for the signed sheets and final listing as uploads, and ask the cut-off questions above as written answers in the same request.
Automatic reminders go every 3 days by default, up to 5 per request, and can be switched off.
Accepting or returning what arrives
Staff can accept or reject each item the client sent and return the request saying what is still missing. Use that item by item:
- Accept the signed count sheets if they are complete, signed and dated.
- Reject a final listing with no costs, explaining that cost per item is needed.
- Return the request asking for the variance report or recount evidence where differences were large.
What is accepted becomes the evidence for the closing inventory figure. What is missing becomes a documented gap, which is a much better position than discovering it at review.
Before the figure goes in
- Signed count sheets agree to the final listing.
- Final listing totals agree to the figure in the trial balance.
- Cut-off answers are on file and consistent with the first purchases and sales of the new year.
- Damaged, obsolete, consigned and third-party stock has been identified.
- Large variances between the count and the records are explained.
How to value what was counted, including when to write stock down, is covered in inventory from client stock records. The questions about stock can also sit in the firm's year-end disclosure questionnaire, and manufacturers will need work in progress valuation as well. Send the count pack request before the client's year end, so they know what to keep on the day.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
