Keeping inventory records: obligations, methods and tips
Do you have physical products? Then inventory records are important. Read about the legal obligations, inventory valuation and practical tips.
What are inventory records?
Inventory records are a registration of all goods that you as an entrepreneur have in stock: which products, how many units, the purchase price and when stock arrives or leaves. The Belastingdienst requires entrepreneurs who trade in goods to keep proper inventory records as part of their fiscal retention obligation. Inventory is a current asset on your balance sheet and directly affects your profit and tax return. The two common valuation methods in the Netherlands are FIFO (First In, First Out) and the average purchase price — LIFO is no longer fiscally permitted. At least once a year you carry out a physical stock count (stocktaking) to verify your records. With Giroo you post purchases and sales directly and the inventory value is automatically updated on your balance sheet.
Are inventory records required?
The Belastingdienst requires entrepreneurs to keep proper records. If you trade in goods, inventory records are part of that. You must retain your records for 7 years.
Source: Belastingdienst — Keeping records
In an audit by the Belastingdienst you must be able to demonstrate:
- Which goods you have purchased (purchase invoices)
- Which goods you have sold (sales invoices)
- Which goods you still have in stock (inventory list)
Inventory on the balance sheet
Inventory is a current asset on your balance sheet. The value of your inventory directly affects your profit and therefore your tax return:
- Inventory increases → you have purchased more than sold → lower profit (costs precede)
- Inventory decreases → you have sold more than purchased → higher profit
Posting inventory movements
When posting inventory you work with two accounts:
- Inventory (balance sheet) — the value of your current inventory
- Cost of goods sold / purchase value of sales (P&L) — the costs of goods sold
| Event | Posting |
|---|---|
| Purchase of goods | Inventory (debit) + Accounts payable (credit) |
| Sale of goods | Cost of goods sold (debit) + Inventory (credit) |
| Inventory correction (write-down) | Inventory correction (debit) + Inventory (credit) |
Methods of inventory valuation
How do you determine the value of your inventory if you purchased the same products at different times for different prices?
FIFO (First In, First Out)
The first goods purchased are assumed to be the first sold. The inventory that remains is valued at the most recent purchase prices.
Example: You buy 10 units at € 5 and later 10 units at € 7. You sell 12 units.
- Cost of goods sold: 10 × € 5 + 2 × € 7 = € 64
- Remaining inventory: 8 × € 7 = € 56
Average purchase price
You calculate a weighted average of all purchase prices.
Example: 10 units at € 5 + 10 units at € 7 = 20 units, average € 6 per unit.
- Cost of goods sold: 12 × € 6 = € 72
- Remaining inventory: 8 × € 6 = € 48
Which method to choose?
- FIFO is the most common and is accepted by the Belastingdienst
- LIFO (Last In, First Out) is fiscally no longer permitted in the Netherlands
- Average purchase price is simple and suitable for products with many movements
Note: Choose a method and apply it consistently. Switching between methods is not permitted.
Stock count (stocktaking)
At least once a year (usually around the year-end closing) you must carry out a physical stock count. During this you:
- Count all physical products
- Compare with your records
- Post any inventory differences (theft, breakage, obsolescence)
Tips for the stock count
- Count preferably at a quiet time (after closing time, on a Sunday)
- Have two people count independently for large inventories
- Note damaged or obsolete products separately
- Take photographs as evidence
Obsolete inventory
Products that are no longer saleable (obsolete, damaged, discontinued) must be written down to the lower market value. This reduces your inventory value and therefore your profit.
Practical tips
- Post purchases immediately — don't wait until the end of the month
- Use an inventory module in your accounting software
- Set minimum stock levels — reorder on time
- Keep a returns log — returns affect your inventory
- Check regularly — not only at the year-end closing
Tracking inventory with Giroo
With Giroo's online accounting software you post purchases and sales directly. The inventory value is automatically updated on your balance sheet. Combine with invoicing for seamless bookkeeping.