Year End Stock Take: How to Count and Value Stock

A year end stock take means counting everything you hold for sale on the last day of your accounting year and valuing it at the lower of what it cost and what you can sell it for. That closing stock figure goes into your accounts, where it reduces cost of sales and so affects your profit. This guide explains who needs a count, how to run one and how to value the result.

Key takeaways

• Stock is counted at the year end and valued at the lower of cost and net realisable value.
• Closing stock reduces cost of sales, so it increases profit for the year.
• This year's closing stock is next year's opening stock.
• Limited companies must keep a record of year end stock and the stocktakings behind it.
• Note damaged, obsolete and slow-moving lines during the count, not weeks later.

What is stock?

Stock, also called inventory, is what a business holds to sell or to turn into something it will sell. It covers three things: goods bought for resale, raw materials and components, and work in progress, which is anything part-made or part-finished at the year end.

Equipment you keep and use, such as tills, tools and vans, is not stock. Nor are goods you hold for someone else that you do not own.

Who needs a year end stock take?

Limited companies. Companies cannot use the cash basis, so their accounts always include a stock figure. GOV.UK says a company's accounting records must include the stock it owns at the end of the financial year and the stocktakings used to work out the stock figure. The full list is under company and accounting records.

Sole traders and partnerships using traditional accounting. GOV.UK says that if you use traditional accounting you need records so your tax return includes the value of stock and work in progress at the end of your accounting period.

Sole traders and partnerships using the cash basis. Since 6 April 2024 the cash basis has been the default method for sole traders and most partnerships, and you must opt out if you want to use traditional accounting. Under the cash basis you only count expenses you have actually paid, and GOV.UK lists buying goods for resale among them. Its cash basis pages do not describe a year end stock valuation. GOV.UK does say a business with high levels of stock might choose traditional accounting. If you switch method or stop trading while holding stock, check the current rules on GOV.UK or ask us. Our guide to cash basis vs accruals compares the two.

How closing stock changes your profit

Under traditional accounting, profit is based on the cost of the goods you actually sold, not everything you bought. The formula is:

Cost of sales = opening stock + purchases - closing stock

Goods still on the shelf at the year end are carried forward as closing stock and become the opening stock of the following year. An overcount overstates this year's profit and understates next year's.

Periodic count or continuous stock records?

A periodic count means you only know your stock when you count it, usually once a year. Continuous (perpetual) records, kept in stock software or a spreadsheet, update with every purchase and sale. Even with continuous records you still need a physical count, because theft, breakage and keying errors make the system drift from reality.

Step by step: running the count

1. Pick the date and time. Count on the year end date, ideally when you are closed. If you must count a few days either side, record all movements between the count and the year end and adjust for them.
2. Tidy first. Group identical items, clear the goods-in area and separate anything damaged or that belongs to someone else.
3. Prepare count sheets. List each product line and location with space for the quantity. Number the sheets so none go missing.
4. Set the cut-off. Note the last delivery note received and the last sales invoice or dispatch note issued before the count. Goods received before the cut-off are counted and the supplier invoice belongs in this year. Goods sold and dispatched before it are not counted.
5. Count in pairs for valuable lines. One person counts and one records, and a second check is done on high-value items.
6. Mark what has been counted so nothing is counted twice or missed.
7. Flag problem stock. Write down anything damaged, out of date, discontinued or slow-moving.
8. Include stock held elsewhere, such as in a store unit, a van or at a customer's site on sale or return.
9. Value the count, then sign, date and keep the sheets.

Valuing stock: cost and net realisable value

Each line is valued at the lower of its cost and its net realisable value. Most lines will be at cost.

Cost is not your selling price, and if you are VAT registered and can reclaim the VAT it is the price before VAT. Where identical items were bought at different prices, a consistent method such as first in, first out is normally used. Whatever method you choose, use it every year.

Worked example (illustrative)

"Fern and Flint Ltd", an illustrative example, is a small homewares retailer with a 30 September year end. Its opening stock on 1 October 2025 was £12,000 and it bought £80,000 of goods during the year. Sales were £130,000.

The count on 30 September 2026 comes to £15,000 at cost. It includes 100 lamps bought at £20 each, £2,000 in total, from a range that has been discontinued. The owner expects to clear them at £12 each, so their net realisable value is £1,200. The line is written down by £800 and closing stock becomes £14,200.

Cost of sales is £12,000 plus £80,000 less £14,200, which is £77,800. Gross profit is £130,000 less £77,800, which is £52,200. Without the write-down, gross profit would have been shown as £53,000. The £14,200 becomes opening stock on 1 October 2026.

The company and figures are invented for illustration and are not a real client.

Records to keep and for how long

Keep the signed count sheets, the valuation workings, notes on any write-downs and the cut-off documents. Companies must keep records for 6 years from the end of the last company financial year they relate to. Sole traders and partners must keep theirs for at least 5 years after the 31 January submission deadline of the relevant tax year, as set out in GOV.UK's guidance on how long to keep your records. See also how long to keep business records.

Common mistakes

• Valuing at selling price. This counts profit you have not yet earned.
• Getting the cut-off wrong. Counting goods whose invoice falls in next year, or the reverse, distorts profit.
• Ignoring dead stock. Items that will never sell at cost should be written down.
• Estimating instead of counting. A guessed figure is hard to support if HMRC asks about it.
• Throwing away the count sheets. They are part of your accounting records.

Stock is one of several year end adjustments. Our guides to accruals and prepayments and the limited company year end checklist cover the rest.

How we can help

We keep your purchase and sales records up to date through the year, give you a count sheet template and cut-off checklist before the year end, and turn your count into the closing stock figure for the accounts. Bookkeeping starts from £150 per month on a fixed fee. See our bookkeeping service, view our pricing, or contact us before your year end.