Inventories (stock) are goods held for sale, goods being made, and materials used to make them. This note breaks down the stock figure on the balance sheet so readers can see what it is made up of.
What this note shows
The note splits the balance sheet stock figure into:
- Raw materials and consumables — materials not yet used in production.
- Work in progress — partly completed goods or services.
- Finished goods and goods for resale — completed products and bought-in goods ready to sell.
These are the sub-headings for stocks in the balance sheet formats in SI 2008/409 Schedule 1. Small companies may show stock as a single figure on the balance sheet, so the analysis here is optional; include it when it helps the reader, for example for a manufacturer. Rows that are nil in both years are left out. FRS 105 micro-entity accounts have no inventories note.
The way stock is valued — normally the lower of cost and estimated selling price less costs to complete and sell — belongs in the Inventories accounting policy.
Where the figures come from
All figures, for the current year and the comparative year, come from the trial balance accounts in the stock group:
| Trial balance account | Row in the note |
|---|---|
| Raw Materials | Raw materials and consumables |
| Work in progress | Work in progress |
| Stock, and any other account in the stock group | Finished goods and goods for resale |
Finished goods is worked out as the stock total less raw materials and work in progress. This means the note total always equals stock on the balance sheet, and no account in the stock group can drop out of the note. If your bookkeeping holds all stock in one account, the whole amount shows as finished goods; to split it, post the raw materials and work in progress elements to those accounts in the trial balance.
Completing the note in Tax Optimiser
- Open the period, choose View Accounts, then Notes.
- Select Inventories and set Show this note in the accounts to Yes.
- Check the Current year and Last year figures and the totals.
- If you want to state the cost of stock expensed, select Additional note for inventories, switch it on and use Use Template.
- Click Save changes.
The editor shows input boxes, but the figures always come from your trial balance; typing in them does not change the accounts. To change them, correct the trial balance.
Wording templates
- Inventories recognised as an expense (in Additional note for inventories) — the cost of stock charged to the profit and loss account in the year, usually your cost of sales for goods. Asks for {{Amount}}.
How it appears in the accounts
The note prints the three rows with the current year in the first column and the comparative year in the second, followed by any additional note.
Frequently asked questions
Why is all my stock shown as finished goods?
Only the Raw Materials and Work in progress accounts fill their own rows. Everything else in the stock group is treated as finished goods. Post the relevant amounts to Raw Materials or Work in progress in the trial balance to split it.
Can I type different figures into the inventories note?
No. The figures come from the trial balance so the note always agrees to the balance sheet. Correct the trial balance instead.
Is the inventories note compulsory for a small company?
The analysis is optional for small companies, which can show stock as one figure. Include it if it helps readers understand the business.
What is “inventories recognised as an expense”?
The cost of the stock sold or used up during the year and charged in the profit and loss account. It is optional; use the template if you want to include it.