The inventory is due at the turn of the year.

3 years ago

The end of the year is approaching – and with it, the obligation for many companies to carry out an inventory. The effort required for this is considerable. However, with professional fixed asset accounting, companies can master the challenge.

For many companies, it is a tedious mandatory task: the annual inventory. The inventory is a stocktaking of the company’s debts and assets. A corresponding legal obligation is contained in the German Commercial Code (HGB) in § 240. Paragraph 1 states: “Every merchant must accurately record his land, receivables and debts, the amount of his cash and his other assets at the beginning of his commercial business and state the value of the individual assets and debts”.

Types of Inventory

But how should the inventory be carried out at all? There are different types to be distinguished here. Above all, with regard to the timing of the inventory, a distinction is made between different types of inventory (for example, key date inventory, permanent inventory).

But the question also arises as to how the inventory must be carried out. Both the book inventory and the physical inventory must be carefully prepared and implemented.

Book Inventory

The inventory is part of fixed asset accounting. Fixed asset accounting is also responsible for the so-called book inventory. This determines the inventories of non-physical assets and liabilities. The basis for the book inventory is the data from financial accounting. For example, the bank balance is recorded according to the documents and data.

However, a book inventory is also permitted for other assets. The fixed asset accounting department lists the assets of the movable fixed assets in a so-called asset register. These include, for example,

Machines
Items of operating and business equipment
Vehicle fleet

But the book inventory is not always sufficient. Many companies also have to organize a physical inventory.

Physical Inventory

The physical inventory can be taken by counting, measuring or weighing the items. The effort required for this is considerable in many companies. In some companies, a complete working day is invested in the inventory. Nevertheless, this is of great importance for companies. Apart from the fact that the legal obligation is fulfilled, it is an inventory control that can provide important insights.

Can, for example, purchasing be optimized?
Are the inventories sufficient – or even too high?
Are assets missing?

An inventory can reveal thefts. The EHI study “Inventory Differences in German Retail 2022”, for example, determined inventory differences of around 4.1 billion euros for German retail. Thefts were committed, among other things, by customers, employees or service providers. More and more companies are also checking their inventories during the year to uncover undesirable developments.

Importance of Fixed Asset Accounting in the Inventory

How complex the inventory actually becomes depends decisively on the organization of the fixed asset accounting. The better structured the approach here, the faster and more accurately an inventory can be carried out. Experience pays off here in planning and implementation.

For example, checklists/checklists should be created and the inventory data from the previous year should be evaluated as a source of information.
In addition, it must be organized: How many employees are needed for the inventory at all? There should not be too little planning here.
Appropriate aids for the inventory (for example, measuring devices) must be functional and available in sufficient numbers.
If necessary, a consultation should take place with the tax advisor in advance.

Clear Communication and Advance Planning

Errors can occur during an inventory. You can quickly miscount or record a result incorrectly. Errors should be minimized as much as possible. Clear instructions are therefore a basic requirement for a successful process. It must therefore be clearly communicated: Which items are counted individually? Which items are recorded, for example, by measuring? And on the day of the inventory, a responsible person should also check the process and be available to answer questions and problems.

The results of the inventory must then be evaluated in the accounting department. Here, too, specialist knowledge is irreplaceable. The accounting department must, for example, clarify complex valuation issues.

Conclusion: Inventory must be carefully prepared

An inventory must be planned, organized and carried out professionally correctly. Only then can it be ensured that the effort remains within a manageable scope and that orderliness is also guaranteed.

Our colleagues are currently on site at our customers’ premises, providing support in the preparation and execution of book inventories or physical inventories. As a partner in finance and accounting, these tasks are part of our fixed asset accounting services on request.

Image source: Unsplash Photographer: Centre for Ageing Better

Author

Sylvia Meier
Guest Author

Sylvia Meier is a certified financial economist (FH) and has worked at the tax office, in consulting (Big Four firm), and for a specialized publisher. Today, as a freelance consultant, she supports companies and can demonstrate numerous publications, particularly on the topics of taxes, controlling, accounting, and finance.

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