Stock at year end

Hi all,
Bit embarrassing this but due to a fundamental misunderstanding of basic accounting I think I may have made a mistake and just wanted some clarity.

At year end we submit our old fashioned paper books to accountants to process and they always email back to say books are ready for collection about 10 days later, never any issue.
BUT this time they’ve taken weeks and I received a communication to say they have a lot of queries etc so trying to schedule meeting with them (which is taking longer than id ideally like).

Anyway i think i know what the problem is now. We were in line to turn a big (ish) profit this year so for the last 2 months of our year i began ordering in loads of stock to use up a small amount of the profits in the hope of using/selling it next year and reducing the profit for tax for this year as i thought it made sense.

But i’m assuming this is why they have queries now. So i googled it and it it seems what i did was stupid because now all the stock i bought has to be added to the profits anyway and taxed, is that right?
If so, id be guessing i bought 10,000 - 12,000 euro of paper (we are a printing company) which would have been left on the shelves ready for use in the new tax year. So basically does that now need to be counted as an asset/stock and factored in when the accountant submits the corporation tax for the year just ended?

And to save myself time here should i be now working out exactly what stock we had left over on the floor at year end for the accountant?

I had heard of people buying machinery to offset against corporation tax so in my stupidity i thought it would work the same way with stock but now appears i may have been wrong and created a bit of a mess for accounts?

Can anyone please confirm?

Hi, to make it very simple here is what happens in accounting terms when you buy stock. Lets us stock costing 100 as an example and assume you have paid cash rather than taken credit to make it easy.

You Dr your stock BS account 100 and you credit your Bank 100 (you effectively swap a cash asset for a stock asset)

This only has a p&l impact when you sell that stock. Lets assume you sell it for 110 (and again assume sold for cash not on credit)

Cr Sales 110, Dr Cost of Sales 100
Cr Stock 100, Dr Bank 110

You now have increased revenues of 110, Cost of sales of 100 and a profit of 10. The stock asset is 0 and the 110 cash is in your bank.

In your case your year end balance of stock is now higher and your creditors are higher or cash is lower but this stock purchase wont impact your taxable profits.

That said it shouldnt be any issue or mess for the accountants.

Thank you Blackrock! Really appreciate that.

So I assume I just need to sit down and work out the exact value of the stock that was left at year end and give the figure to accountants now to keep everything square?

I assume I haven’t done anything that revenue would frown upon? Considering i bought the stock at end of year but then will have showed it as stock on the balance sheet etc?
Sorry i’m brutal at this type of thing…

Redder Than Red said:

Thank you Blackrock! Really appreciate that.

So I assume I just need to sit down and work out the exact value of the stock that was left at year end and give the figure to accountants now to keep everything square?

I assume I haven’t done anything that revenue would frown upon? Considering i bought the stock at end of year but then will have showed it as stock on the balance sheet etc?
Sorry i’m brutal at this type of thing…

Click to expand...

No nothing untoward lots of businesses carry huge amounts of stock.

I presume you must always carry some level of stock have the accountants ever done a year end stock take ?

Blackrock1 said:

No nothing untoward lots of businesses carry huge amounts of stock.

I presume you must always carry some level of stock have the accountants ever done a year end stock take ?

Click to expand...

Cheers Blackrock, yes we always carry some stock, although usually far less than that. They always just ask us roughly what’s your stock worth at end of year and we’d almost always say 2k-4k.
This year it will be 12k.

Colm Fagan said:

I think @Blackrock1 has hit the nail on the head, that the accountants have a problem because they didn’t show any stock in previous years but they can’t ignore it this year. Purely a guess. I could be wrong.

Click to expand...

Ah ok. So to get ahead of the curve here i may as well do a proper check on what we had in stock for year end and have it ready for them so.
Yes it will be way higher than our norm alright

Redder Than Red said:

Ah ok. So to get ahead of the curve here i may as well do a proper check on what we had in stock for year end and have it ready for them so.
Yes it will be way higher than our norm alright

Click to expand...

main point is dont worry you havent done anything wrong, youll just have the stock ready for trading in the following accounting year.

Colm Fagan said:

I think @Blackrock1 has hit the nail on the head, that the accountants have a problem because they didn’t show any stock in previous years but they can’t ignore it this year. Purely a guess. I could be wrong.

Click to expand...

I doubt the accountants just omitted stock from the year end accounts !

If it was small in previous years they may have been happy with an estimated figure, if it is 3 to 4 times more than usual this year they may want a stocktake.

However it is unlikely they would need a meeting for this, it seems a simple matter. "Hey Red, why is stock so high this year.' 'We bought a lot just before year end. See here is the invoice'

Are the accountants doing an audit ?

cremeegg said:

I doubt the accountants just omitted stock from the year end accounts !

If it was small in previous years they may have been happy with an estimated figure, if it is 3 to 4 times more than usual this year they may want a stocktake.

However it is unlikely they would need a meeting for this, it seems a simple matter. "Hey Red, why is stock so high this year.' 'We bought a lot just before year end. See here is the invoice'

Are the accountants doing an audit ?

Click to expand...

Cheers Creme! Nope they never mentioned an audit. Do accountants request/advise audits?

And yes you’re right about the normal way they estimate our stock.
It usually just involves them saying whats your leftover stock and we’d say 2k and they’d be fine with that. Sure it’s small potatoes usually in the grand scheme of things.

We submitted all our paperwork to them for the end of year thing so they actually have all the invoices showing what stock we bought and what price and what date etc.
Thanks for the replies everyone. Earlier i was fretting that maybe it looked like i was doing something dodgy but after reading all your replies it has dawned on me that all i really did was buy a heap of stock and there’s nothing illegal about that.

I do feel a bit stupid though for initially thinking it was a really tax efficient way of going about things though when in reality it’s going to make zero difference to the tax bill. Not my brightest moment.

Redder Than Red said:

Cheers Creme! Nope they never mentioned an audit. Do accountants request/advise audits?

And yes you’re right about the normal way they estimate our stock.
It usually just involves them saying whats your leftover stock and we’d say 2k and they’d be fine with that. Sure it’s small potatoes usually in the grand scheme of things.

We submitted all our paperwork to them for the end of year thing so they actually have all the invoices showing what stock we bought and what price and what date etc.
Thanks for the replies everyone. Earlier i was fretting that maybe it looked like i was doing something dodgy but after reading all your replies it has dawned on me that all i really did was buy a heap of stock and there’s nothing illegal about that.

I do feel a bit stupid though for initially thinking it was a really tax efficient way of going about things though when in reality it’s going to make zero difference to the tax bill. Not my brightest moment.

Click to expand...

No real harm done anyway