Preparing for Your Annual Accounts

6. Stock and Uncompleted Work

The value of stock is a key element in retail and manufacturing businesses. It includes work-in-progress. Service businesses have little physical stock, but may have considerable work-in-progress, such as half-finished projects.

6.1 The cut-off between stock, purchases and sales is one of the main areas for potential errors in the accounts.

• If a purchase has arrived in the warehouse, but an invoice has not been received, the cost is included in the accounts.
• If you have sold (and invoiced) but not yet delivered goods, exclude these goods from the valuation of your stock. The sale will already be in your accounts as a debtor.

6.2 Unless stocks are a minor item in your accounts, you will need to carry out a stocktake. This is a physical count-up of the goods on your premises. It is made easier and faster with careful planning.

• Set out stocktaking procedures in writing.
• Lay out stock in a logical way, so that all stock of the same type is in one place.
• Label the stock and print lists of the different types of stock on hand.
• Ensure no stock comes in on the day of the stocktake (usually a Saturday).If this is unavoidable, stock movements must be tightly monitored and recorded.

6.3 Once the stock has been counted, it needs to be valued. This will be based on the lower of the cost to you or the amount for which you expect to sell the goods.

• Have the price lists from your suppliers available or a copy of the invoice for the goods from the supplier. Describe the items on your stock list in the same way as these items are described on the supplier's price lists, so everything can be matched.
• Make a note of any old, obsolete or damaged goods.
• Make a note of unfinished pieces of work and record what has to be done, giving it a value, for example of 25 per cent at the end of the year.

6.4 Service providers are required to include partly completed work at stage to completion method. For example, if a contract is 75 per cent complete at the year end, then 75 per cent of the contract value would be included in the year end accounts as uncompleted work. Keep a list of:

• Work you have started before the year end but haven't invoiced at the year end.
• Detail the estimated sales value when you have completed the work.
• Estimate and note as accurately as you can the percentage of the work you have done by the year end. You can use time records, job costing or diaries to help you work out the percentage.