Site logo

Importance of an Inventory Count

October 29, 2013

Tax Question:

Why should I perform an inventory count?


Inventory is an item that can fluctuate a lot and tie up a significant amount of cash. Depending on the type of inventory you stock you may also need to worry about misappropriation or other valuation risk factors, therefore, it is extremely important to have an accurate count and value of your inventory goods.


There are many important reasons for ensuring your inventory has been accurately counted and valued.

  • It is a key number on your financial statements. It may be of particular concern if you are looking for additional financing, selling your business or supporting existing financial covenants.
  • You want to determine the value of inventory and any write-offs that may be applicable. Obsolete inventory should be removed from the records; writing off inventory reduces the tax bill. The value you assign to stock should be the lower of resalable value or cost.
  • Regular inventory counts allow you to track the turnover of various products, you can use this information to stock just the right amount and types of products needed rather than hold too many slow-moving products. Tracking inventory for this purpose requires a delicate balance as you still need to ensure that you have enough stock on hand to meet your customers’ needs.
  • To identify and minimize theft and loss. Paying close attention to inventory will allow you to identify anomalies in the count and hopefully avoid any losses or at least identify issues for correction sooner rather than later.
  • Appropriate taxes the higher the inventory at year-end, the more tax you have to pay as closing inventory is deducted from purchases when calculating the cost of goods sold. An accurate inventory count means you are matching your tax cost to the results of the company.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

Share this post

Related posts