Where Does Inventory Go at the End of the Year?

The items that businesses market to customers are called inventory, and they show on a company's balance sheet as assets until the items are sold. Measuring the changing value of inventory over time necessitates a specific level of difficulty, and the ways used can have tremendously different impacts on a corporation's books. Corporations must prepare for proper inventory treatment by the end of every year.

At the close of every year, the unsold stock is not counted as an expense. This would violate specific accounting rules, and providing the stock sits in the depository, it has to constantly be recorded on the company's financial records as property. Once it’s sold, the brand can record the disbursement of acquiring the inventory. This matches up the income the company has earned from sales against the expenditures brought on getting the items to put on the market.

At the end of each year, a business must provide a total of all of its left-over inventory. This lets the corporation record accurate stock balances on its financial statements. Taking inventory on the last day of every year is not a possibility for many corporations, so they have to take physical inventory counts throughout the year, and draw assumptions to help them formulate a good estimate of the inventory balance at the end of each year. They must establish the stock they have at the start of the calendar, make physical counts during the calendar year, and then take away the amount of products sold to arrive at the year-end total. Additionally, the amount of stock products marketed as recorded on the company's financial records must correspond with beginning stock and the amount of left over physical pieces of inventory at year-end.

Regarding taxes, companies have to re-consider the value of inventory at the end of each calendar year. Assigning a value to each portion of inventory is harder than it sounds. For example, a business acquires 10 items in January for resale, and pays a few dollars for each of them. In the summer, they acquire a second set, because the markets have lowered costs and they could now buy the widget inventory for $3 apiece. By the end of the calendar, they have gotten rid of half their total inventory of widgets. In this general sample, the business can assume that the first inventory to come into the warehouse is the first sold off. Then, all the business needs to do is calculate how many items in inventory remain from the original order and the three-dollar order, then use some simple math to get to the value of the stock. Although, in reality, many businesses have hundreds of thousands of pieces in inventory, acquired via hundreds of various purchases at various pricing points during the year.

Understanding what happens to year-end inventory is simple theoretically, but complex in practice. Brands have to have suitable bookkeeping staff that understand the right and generally-accepted methods for tracking inventory throughout the calendar and attaching precise values to it, then appropriately chronicling lasting inventory balances the end of every calendar year.

Alex Jacobs spent her childhood years in a underdeveloped section of NY. She studied hard to excel in school and get where she is nowadays. Today she runs a productive clothes business that provides mainly online. Her on-line sales grew so much she turned to 3rd party logistics services to assist maintain the supply. She attempts to make modern but comfy items for the office women. Her dresses have been highlighted in most of the important magazines and web-based sites.