--- title: "Year-End Inventory Count & Valuation Records | MCC Solutions" description: "Plan the count, check cutoff, compare to the books and keep the evidence. Worked variance example." url: "https://mcc-solutionsnj.com/bookkeeping/guides/year-end-inventory-count-and-valuation-records" --- Bookkeeping guide · Updated October 12, 2026 # Year-End Inventory Count and Valuation Records If your business sells products, inventory at year end affects your cost of goods sold and therefore your profit. A careful count is the strongest protection against both overstated and understated profit. This guide covers the process and the records. The valuation method itself is a tax decision to make with your preparer. By [Matthew Coleman](/about), MCC Solutions **Quick answer.** For a year-end inventory count, choose the count date, ideally the last day of the year, and stop or record sales and receipts during the count. Assign areas to people, print count sheets listing item names, locations and units of measure, and tell staff how to handle damaged items. Want this handled for you? Monthly bookkeeping, cleanup and year-end close for small businesses. Start with a free health check of your books. [Free health check](/bookkeeping/health-check)[Get a quote](/bookkeeping/#interest) **Related:** [Closing entries and retained earnings](/bookkeeping/guides/closing-entries-and-retained-earnings) · [Void vs delete a transaction](/bookkeeping/guides/voiding-vs-deleting-transactions) · [NJ 1099 contractor rule (ABC test)](/bookkeeping/guides/nj-independent-contractor-rule-abc-test-2026) **Free tools:** [Price per unit calculator](/bookkeeping/price-per-unit-calculator) · [How many sales do I need to break even?](/bookkeeping/break-even-calculator) [Check turnover and days on hand with the inventory turnover calculator](/bookkeeping/inventory-turnover-calculator). [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## Plan the count before the day Choose the count date, ideally the last day of the year or as close as practical, and arrange to stop or record sales and receipts during the count. Assign areas to people, print count sheets listing item names, locations and units of measure, and prepare labels or tags if needed. Tell staff what to do with damaged or obsolete items. Receive and record everything delivered before the cutoff, and hold shipments that arrive after. Goods in transit require a note on who owns them at the date. ## Count with checks Use two people where possible, one counting and one recording, and have a second person recount a sample of high-value items. Count by location so nothing is missed or counted twice. Mark counted areas. Include items held at other locations, with employees or on consignment, and exclude items belonging to customers or consignors. Note anything damaged, expired or slow moving. It may be worth less than cost. ## Compare to the books Total the count at cost and compare it to the inventory balance in your accounting software or inventory system. Investigate large differences by item. Typical causes are unrecorded sales or returns, receipts posted to the wrong date, theft, and wrong unit conversions. Record the adjustment between book and counted inventory in a separate shrinkage or adjustment account, so you can track trends over time instead of burying them in cost of goods sold. ## Valuation support Keep supplier invoices that support the cost of the items on hand. If prices changed during the year, your preparer will tell you how to value what is left, using methods like first in first out or average cost, and the choice must be applied consistently. A change in method needs advice. Items worth less than cost for reasons such as damage should be documented with photos and notes before any write-down. ## Want us to handle it? We close the year with you: accounts reconciled, 1099s sorted, and books your tax preparer can use. **Price:** Free review of your books first, then a written quote before any work starts. [Get a free review and quote](/bookkeeping/#interest) [1099 and year-end cleanup](/bookkeeping/1099-and-year-end-books-cleanup) ## File the evidence Save the signed count sheets, the summary, the reconciliation to the books and the adjustment entry in your year-end folder. If a lender or buyer ever asks about inventory, this package answers the question. Between counts, consider cycle counts of a few items each month. They catch errors earlier and reduce the work at year end. ## Mistakes to avoid on count day The classic errors are counting some items twice because they moved during the count, leaving out stock in a back room or vehicle, mixing units such as cases and single pieces, and counting items sold but not yet shipped. A simple rule helps: no stock moves during the count unless it is logged on a movement sheet. After the count, resist the urge to adjust the numbers to match what the books say. Investigate the difference and record the true count. A count that merely confirms the books proves nothing. ## Worked example with numbers Count sheets total $48,300 at cost. The books show $50,100. The $1,800 difference is 3.6% of book value. Investigate: $700 is a receiving error, where goods arrived after year end but the bill was already booked; $400 is damaged stock to write down; $700 is unexplained and goes to shrinkage. Adjust the books to $48,300 with the three amounts documented. ## Mistakes that cost money Counting without a cutoff for receipts and shipments. Valuing at selling price. Letting one person count and record. Throwing away the count sheets. ## Check your work Keep the signed count sheets, the cutoff notes and the adjusting entry together for your preparer. ## Common questions **Do service businesses need to count inventory?** Usually not, unless they hold supplies or goods for resale. Ask your preparer if you are unsure. **Can I estimate inventory instead of counting?** Estimates may be used in some settings, but a physical count is the most reliable support. Ask your preparer what they require. This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation. Let us handle it [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) More guides - [Year-End Accounts Receivable Review and Bad Debts](/bookkeeping/guides/year-end-accounts-receivable-review-and-bad-debts) - [Prepaid Expenses and Accrued Liabilities at Year End](/bookkeeping/guides/prepaid-expenses-and-accrued-liabilities-at-year-end) - [Startup Costs: Records to Keep Before You Open](/bookkeeping/guides/startup-costs-records-before-your-business-opens) - [Equipment Purchases: Records for Expense vs Capitalize](/bookkeeping/guides/equipment-purchase-records-expense-or-capitalize) Free tool - [Bookkeeping health check](/bookkeeping/health-check) [All guides](/bookkeeping/guides) Reach small business owners, freelancers and bookkeepers who read this guide: [advertise here](/advertise#bookkeeping). Do it yourself ### Inventory Tracker and Reorder Workbook Log what comes in and goes out and see what you have, what it is worth, what to reorder and what has not sold. 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