Every merchant within the meaning of the German Commercial Code (HGB) must prepare a list of inventory at year-end. All assets (e.g. land, goods, receivables, liabilities, etc.) are measured by quantity and value (§ 240 Abs. 1 und 2 HGB).
Freelancers as well as entrepreneurs who determine their profit using the cash-basis method (Einnahmenüberschussrechnung) are not considered merchants within the meaning of the German Commercial Code and are therefore exempt from this obligation.
The physical recording of stock for the preparation of the inventory list — that is, measuring, counting and weighing — is referred to as the stocktake (Inventur). The annual stocktake serves not only to reconcile the accounting records but also to prepare the annual financial statements (e.g. valuation of inventory).
Stocktake Timing and Methods
In principle, the stocktake can be carried out in three possible variants. The most common option is the cut-off date stocktake, in which an inventory list is prepared within 10 days before or after the balance sheet date. Pursuant to § 241 Abs. 3 HGB, a stocktake conducted up to three months before or two months after the balance sheet date is also permissible, provided that a special inventory list is prepared and the values and quantities are projected forward or backward to the relevant balance sheet date. Finally, a perpetual stocktake may also be carried out if the stock of inventory is recorded by type and quantity in the warehouse accounting system. These stock levels must be reviewed regularly and verified for accuracy.
Valuation of Assets
Assets and liabilities must generally be valued individually as of the reporting date. This is intended to prevent the offsetting of different assets against one another.
Assets are to be recognised at their (amortised) acquisition cost or (amortised) production cost. Possible incidental costs of acquisition or production (e.g. transport, commissioning costs, financing costs, etc.) must also be taken into account. When determining the value of inventory, so-called simplification methods may be used. Under commercial law, these include the LIFO method, the FIFO method and the average cost method (cf. § 240 Abs. 3 u. 4 HGB). When determining values, it is important to keep the principles of the stocktake in mind, namely that the valuation must be carried out clearly and in a verifiably correct manner.
Note: Conducting a Stocktake of Inventory
When conducting the stocktake, particular attention should be paid to determining the inventory of goods, as this review accounts for the largest share of time in preparing the inventory list. For this reason, the following should be established before the stocktake begins:
- When the stocktake will be carried out (keyword — favourable timing)?
- Who will carry out the stocktake (stocktake supervisor)?
- Whether the stock has been arranged in a clear and orderly manner, and
- Whether possible product groups/related items have been reviewed.
Once these questions have been clarified, nothing should stand in the way of the stocktake.
Frequently asked questions
Frequently asked questions
Who is required to prepare an inventory?
All merchants within the meaning of the German Commercial Code are required to do so pursuant to § 240 Abs. 1 and 2 HGB. At year-end, they must record all assets such as real estate, goods, receivables, and liabilities by quantity and value. Freelancers and entrepreneurs who determine their profit via the cash-basis income statement (Einnahmenüberschussrechnung) are exempt from this obligation.
What is the difference between inventory list and stocktaking?
The inventory list (Inventar) is the written record of all assets and liabilities, including quantities and values. Stocktaking (Inventur), by contrast, refers to the actual physical recording of stock through measuring, counting, and weighing. In other words, stocktaking is the activity, while the inventory list documents its results.
Which inventory methods are permitted under the HGB (German Commercial Code)?
Three methods are permitted: the balance sheet date inventory within 10 days before or after the reporting date, the time-shifted inventory up to three months before or two months after the reporting date with value adjustment pursuant to § 241 Abs. 3 HGB, and the perpetual inventory based on warehouse accounting. For the perpetual inventory, stock levels must be checked regularly and verified for accuracy.
At what values must assets be recognised in the inventory?
As a rule, assets must be valued individually at their (amortised) acquisition or production cost. Incidental costs such as transport, commissioning or financing costs must also be taken into account. For inventories, simplified methods such as LIFO, FIFO or the weighted average method under Section 240 (3) and (4) HGB are permissible under German commercial law.
What should be clarified before starting an inventory of goods?
Before the inventory begins, the date of execution and the responsible inventory manager should be defined. Stock items must be clearly organized, and potential product groups or related items should be reviewed in advance. Thorough preparation is essential, as determining the inventory of goods accounts for the largest share of time during the inventory process.