Stock valuation

What the stock on your shelves is worth in the accounts. Lower of cost and net realisable value.

What it means

Stock is valued at the lower of what it cost and what it can be sold for less the costs of selling it.

Why it matters

Stock is often the largest number on a small business balance sheet, and it directly affects reported profit: a higher closing stock figure means a lower cost of sales and a higher profit.

What it looks like in practice

Count it at year end. Write down anything obsolete, damaged or unsellable at its real value rather than its cost.

What to watch out for

Valuing stock at what you hope to sell it for. That is not the rule, it overstates profit, and it produces a tax bill on money you have not made.

Where to get proper advice

Your accountant. This is exactly the kind of question they answer in ten minutes and most owners never ask.