What is a physical inventory?
A physical inventory, also known as a stock-taking or inventory, is an accurate count and valuation of a company’s owned goods and raw materials. As the name suggests, a physical inventory cannot be based on data from inventory software – all goods must be counted manually and the actual inventory recorded.
Thanks to the physical inventory, the company has information on the actual inventory – in this way it can verify whether the inventory was reported correctly during the year, discover any irregularities, mistakes or theft.
The main purpose of a physical inventory, however, is to determine the the actual income of the enterprise – In the P&L, income includes:
- add the difference between the final inventory (as of the last day of the fiscal year) and the beginning inventory (as of the first day of the fiscal year), if the value of the final inventory is higher than the beginning inventory,
- subtract the difference between the beginning and ending inventory, if the value of the ending inventory is lower than the beginning inventory.
Who is affected by the obligation to take a physical inventory?
The cyclical obligation to carry out an inventory applies to entrepreneurs who keep a KPiR and account for the tax scale or flat tax.
Important!
Companies that account for their income using a lump sum on registered income are not required to take a physical inventory periodically. The need for an inventory arises in their case only in one situation – when they liquidate their business.
In what situations should an inventory be taken?
As a rule, a physical inventory should be taken at specific times. They are indicated by the Decree of the Minister of Finance dated December 23, 2019. On keeping a tax income and expense ledger:
- as of January 1,
- On the last day of the fiscal year,
- On the day of the start of business,
- On the date of liquidation of the business,
- In the event of a change in the shareholder and/or the proportion of shareholders’ shares,
- At any time at the request of the head of the tax authority.
Important!
If the tax year begins and ends on the same date as the calendar year, there is no need to take a physical inventory on January 1 – in this situation, it is sufficient to simply rewrite the inventory from the last day of the year.
What components must be included in the physical inventory?
Proper preparation of a physical inventory requires adherence to the guidelines described in the aforementioned Decree of the Minister of Finance. This applies not only to the content of the inventory, but also to the data that should be included in the document.
Not only goods are subject to inventory – here is a list of items that should be included in the physical inventory:
- commercial goods,
- Basic and auxiliary materials (including raw materials),
- semi-finished products,
- production in progress,
- finished goods,
- shortfalls,
- Waste,
- goods owned by the taxpayer that are outside the taxpayer’s establishment on the date of the inventory,
- foreign goods located on the taxpayer’s premises.
It is also worth remembering that the physical inventory should not include fixed assets or equipment of the company.
How to value the elements of a physical inventory?
Commercial goods listed in the physical inventory are subject not only to conversion, but also to valuation – the taxpayer is required to prepare a valuation based on purchase or acquisition prices. However, if these prices are lower than the market, the current (as of the date of the inventory) prices of the goods in question should be taken into account.
Semi-finished goods, finished goods and shortages of own production should, in turn, be valued in accordance with the cost of their manufacture.
Finally, waste valuation involves estimating its suitability for further use.
Important!
Foreign goods, included in the inventory, should not be valued – only their number should be specified and whose property they are.
Important!
The valuation does not have to be prepared at the same time as the inventory – the taxpayer has 14 days from the date of preparation of the physical inventory to do so.
How to take a physical inventory?
The physical inventory takes the form of a sheet, which should be properly described. The data that should be included in the inventory are:
- The name of the owner or the name of the enterprise,
- date of the inventory,
- The sequence number of the item of the physical inventory sheet,
- detailed specification of the goods and other components listed in §24 of the aforementioned. Regulations-including:
- units of measurement adopted,
- the number of a given item found at the time the census was taken,
- The price of a unit of measure expressed in PLN currency,
- The value of the component, resulting from multiplying its quantity by the unit price,
- The total value of the physical inventory,
- A concluding clause, such as one that reads “The inventory was terminated at item…”,
- signatures of persons, taking part in the census,
- signature of the owner of the enterprise.
Zero-based physical inventory
What if a company has no goods for sale or production that could lead to waste? The situation affects many service companies that simply have nothing to put on the physical inventory.
A taxpayer who is in such a situation is still obliged to draw up a so-called “tax return”. zero physical inventory, a document that looks identical to a typical summary of the inventory taken. The difference is that the table, which lists the components of the inventory, will remain blank, and the final value of the inventory will be PLN 0.00.
It is also worth remembering the termination clause – in this case it is enough to put a note that reads: “the inventory was terminated at item 0”.
Summary
Inventory of goods and other components by means of a physical inventory is an obligation for all taxpayers using the tax scale or flat tax. The inventory should be part of your P&L records, which means you don’t have to submit it to the tax office (except when the inventory is done at the request of the head of the IRS) – just keep it in your company records.
Preparing the inventory is also a good opportunity to compare the inventory listed in computer programs with the actual inventory.
