Roche & Cie

Our advice to facilitate the year-end inventory

 INSTRUCTIONS FOR THE EXECUTION OF THE YEAR END INVENTORY 

The principle is simple: in accordance with the article L.123-12 of the Commercial Code, the company must carry out a physical inventory of stocks, in quantity and in value, at least once a year.

Be careful, the inventory is challenging in time: it has to be anticipated and prepared in advance.

When?

In principle, the inventory has to be realized the day of the financial year closing, except if the company is based on a permanent inventory.

If you can’t proceed to the inventory the exact day of the financial year closing, you’re allowed to carry out the inventory few days before or after the closing, on the condition that you establish the stock amount by the override of each accounting entry and retirement arisen between the closing date and the date of the realization of the inventory.

Which stocks?

The annual inventory includes mainly the total production stocks count:

  • Raw materials for production;
  • Goods in production;
  • Finished goods for sale.

PRACTICAL PIECES OF ADVICE

There are 3 major principles useful to facilitate the inventory establishment.

Principle of separation of tasks and supervision: the first thing to do is to clean the storage area and to divide the works. In function of the size of the company, a service manager can supervise the count teams.

Principle of count: when launching the inventory, everyone has to get a count document to indicating the product reference and precising the number of related goods. Each document has to be validated and signed by the manager who can check the count done. To avoid the double counts, you can:

·  constitute teams (by product’s family, by goods, by storey, etc…), to determine precisely who is going to do what.

·  mark a cross on the box that has been inventoried.

Principle of exhaustiveness: all the stocks must be inventoried and counted. All the company places must be checked (storehouse, stocks on deposit with a third party).

Otherwise, it’s important to carry out the inventory a closing day to avoid a stock activity during the count. In fact, it is advisable to suspend the company activity during the inventory or to reduce it to the full.

To suspend the activity the minimum period of time, there are 2 solutions:

·  To use the whole of employees;

·  To carry out one part of the inventory during the night or early evening.

THE OPERATIONS

The inventory must gather together all the goods, raw materials, finished goods which are still in your possession at the date of the financial year closing.

Be careful!  The capital goods and the material which are not supposed to be sold are not included in the stock.

To help you with the procedure, don’t hesitate to download our inventory table and to follow the instructions below.

1.  Operational process

·  To inventory following the placement of goods, without trying to gather together the materials of the same type.

2.  Designation of goods

·  To provide a max of information in the designation of the good;

·  To fill as fully as possible the columns “SUPPLIER”;

·  In the column “STATE”, to put the letter N if the good is new, U if the good is used and D if the good is deteriorated;

·  To indicate the year of purchase and precise his type (raw material, finished product, material).

Concerning the “unit of measure”, it should be precised if it’s “meters, kilo, box, etc…

STOCK VALUATION

After a count of all the goods in stock, it’s important to set the unit value for each one.

It’s important to retain the goods or raw materials purchase price excluding tax as it appears on the purchase invoices. If your suppliers make business discounts, the purchase price has to take account of it.

To obtain the total value of the stock, the quantities have to be multiplied by the unit value and each line has to be added up.

Be careful: you have not the right to value your stock on the base of the theoretical selling price.

If the company activity is purely commercial, it’s important to determine a purchase price. If the activity is related to the production, you have to identify all the production costs.

When companies can’t determine with precision their actual cost price, the administration accepts an evaluation obtained applying valuation methods.

There are mainly two methods:

·  The weighted average unit cost

·  First in first out

OTHER INSTRUCTIONS

BEFORE THE INVENTORY

1.  To clean the storage area

2.  To facilitate the identification of the goods and the count

3.  To inventory all the storage places

4.  To establish a list of persons who take place at the inventory

5.  In case of gap between the inventory date and the financial year closing, you have to identify the goods which have moved during this period.

6.  In case of goods received on deposit on the inventory area, you have to mark it, to avoid taking it into account

7.  To read the instructions to the persons in charge of the inventory

DURING THE INVENTORY

8.  To supervise the count

9.  To valuate the damaged degrees of the materials

10.  To get back all the documents and to control the signature of the last documents

AFTER THE INVENTORY

11.  To take the list of persons participating at the inventory and to indicate the number of documents given back by each person

12.  To sign the documents


For additional information, please don’t hesitate to contact us :
Cabinet Roche & Cie, Chartered english speaking accountant in Lyon, France.
Specialist in Real estate and non-résidents taxation.