In the inventory, the assets of a company are determined on a key date; in this way, assets and liabilities are specifically documented. Such an inventory is a prerequisite for correct bookkeeping and accounting.

The inventory is an important basis for the annual financial statement of a company, therefore it usually takes place at the end of a fiscal year. The Commercial Code also prescribes an inventory at the beginning or end of a commercial activity or in the event of a change of name.

Important: As a rule, the warehouse management system or the inventory management system integrated into it serves as an aid for intralogistical stocktaking; the monetary valuation of the stocks determined on the basis of the inventory is usually carried out in the ERP system.

The inventory serves the self-regulation of the company and ensures a certain protection of creditors; in addition, it is a control function for the bookkeeping, since the stocks are recorded independently of it. Therefore a proper inventory is also subject to certain fundamental principles, including the following:

  • the accuracy of the balance sheet (complete inventory)
  • the accuracy (correct inventory)
  • the continuity (regular counts)
  • the clarity of the balance sheet (verifiability of the inventory)
  • the individual entry of items during the stocktaking

If these principles are not adhered to, the accounts are not properly kept and the accounting based on them is null and void.

Inventory items

Physical assets are counted, measured or weighed during the inventory. Intangible assets, on the other hand, are evidenced by an inventory of books (lists of account balances). Business premises or, for example, seasonal goods are in turn subject to a decline in value; such assets are depreciated in the course of the inventory. During this inventory, the assets are reconciled with the accrued accounting entries. If there is a deviation (inventory difference) between the target and current stock, the accounted stock is considered correct. The detected inventory differences must, therefore, be subsequently corrected in the accounts. The differences thus change the operating result by means of a profit and loss account.

Inventory in intralogistics

In order to carry out a proper inventory in accordance with the regulations, company-internal organizational guidelines must be established, which include process, room, schedule and personnel planning as well as documentation. In intralogistics, the most common types of physical inventory include key date inventory, continuous inventory and time-deferred inventory.

Year-end inventory

In the case of annual inventory, the stocks are recorded in terms of quantity on a fixed date at the end of the financial year, as required by the German Commercial Code. This inventory should be carried out close to the balance sheet date. A time offset of the count of ten days before and ten days after this date is possible. All position changes within this period must then be calculated back or forward to the key date.

Advantage: The stocks and values determined can be assigned to a balance sheet date or a clear period close to the balance sheet date.

Disadvantage: As of the balance sheet date, a business shutdown is necessary to carry out the inventory. In addition, a large number of personnel is required.

Continuous inventory

With the continuous inventory, the stocks and all receipts and issues are continuously recorded and documented over the current fiscal year. The quantities and entry data are kept in a stock ledger (nowadays often in the form of an inventory management system). Whereas in older warehouses a complete inventory of all article stocks was required once a year for the economic evaluation of the warehouse stock (see Annual Inventory), in modern warehouses the permanent inventory is the norm. Any count that takes place anyway in the normal course of events is treated as an inventory count. Counts only have to be initiated for those pallets whose last count up to the inventory date is more than one year ago. Provided that the warehouse management system used supports this. As a rule, such a count is carried out via the inventory management system.

Advantage: No build-up of additional workload and business downtimes are necessary to carry out the inventory. Worth mentioning: The permanent inventory is less time-consuming, since the inventory-relevant checks, for example in the picking process (see also picking), are also carried out – electronic reconciliation with the inventory management.

Disadvantage: In order to guarantee a permanent inventory, a well-organized stock accounting is necessary.

Time-deferred inventory

In the case of deferred inventory ( postponed inventory), the time of entry can be up to three months before or two months after the balance sheet date. However, this type of inventory is rarely used in practice.

Advantage: The operator of a distribution center, for example, has a freedom of choice when it comes to taking inventory. He can therefore plan these in detail and carry out counts outside the actual peak storage loads. Another point touches on inventory differences; they can usually be found, analysed and, if necessary, eliminated at leisure.

Disadvantage: If the time span for recording is up to three months, this invoice means additional work and represents a possible source of error. Moreover, this type of inventory is not permitted for valuable items. Perishable goods or products with some form of deterioration over time must also not be subject to this type of inventory.

Sample inventory

Inventory sampling is another common form of physical inventory. Since 1977, it has been legal to carry out an inventory sampling. According to HGB § 241, it is permitted to determine the stock of assets by random sampling, subject to the following conditions:

  • Recognised mathematical-statistical methods must be used.
  • The principles of due accounting must be observed.
  • The inventory sampling must have the same informative value as, for example, the conventional inventory sampling methods (counting, measuring, weighing).

The principles listed above are extended or specified by one additional step in the inventory sampling procedure:

  • During the physical inventory, it is planned to take three to five percent of the most valuable storage elements in order to record 45 – 50 percent of the total value.

Special case: the sequential test with an automated storage system

If an inventory is scheduled within an automated storage system, i.e. where it can be assumed that there is a high level of stock accuracy, a so-called sequential test is suitable. As a matter of principle, this does not determine the total value of the respective storage facility; rather, it is checked whether the shortfall is acceptable. Either quantitative (heterograde) or qualitative (homograde) characteristics can be used. A homograde and a heterograde sequential test differ in that in the homograde sequential test only the amount is relevant; in the heterograde sequential test the difference value is taken into account in addition to the amount*. The latter is, however, irrelevant within the warehouse management, since only the stocks are managed there and not the individual values.

For the drawing of samples, the requirement applies that individual units, such as products, are randomly selected from elements, such as stock items. However, it must be possible to precisely delimit the individual storage positions within a population. A distinction is made between an unrestricted random sample and a simple random sample.

  • In the case of unrestricted random sampling, each storage item has the same probability of being included in the sample selection. Elements are pulled without being put back.
  • In the case of the simple random sample, in addition to the fact that the same probability prevails for each stock item in order to be included in the sample selection, an independent drawing from the inventory population shall be made. This means that the elements are pulled and then put back again.

Important: On the one hand, for a sequential test, the general stock accounting must be coordinated with this inventory procedure, on the other hand, the procedure requires an official release from the responsible tax office or the responsible auditor.

Mathematical principles of inventory sampling

Two procedures are conceivable for the use of recognised mathematical-statistical methods:

  • the free mean value procedures – these are procedures that provide different methods for company valuation. The various methods are used to determine the capitalised earnings value and the net asset value. In principle, the capitalized earnings value represents the actual value of the company; however, this is not one hundred percent suitable for a correct valuation due to its partly uncertain factors. Therefore, the net asset value, i.e. the material substance of the company, is included in the valuation. The end result is a key figure that varies according to the industry sector, the size of the company and its history. Possible approaches/methods are the Berlin procedure, the Swiss procedure and the Stuttgart procedure.
  • the bounded procedures – these types of procedures aim at business valuations that are subordinated to a specification of characteristics. Such a procedure attempts to provide an extrapolation or an estimated mean value; whereby the deviations between the sample results and the stock book values are made in the course of a comparison (meaning/comparison) with the following estimates: difference estimates, ratio estimates and regression estimates. In the end, the key figure results in the so-called total deviation. Difference estimations are the easiest methods to carry out, in which differences between actual and target stock are determined.

In both procedures, the initial hypothesis (null hypothesis, also known as H0) is tested in a random sample against the alternative hypothesis (also known as H1), which is regarded as a contrast.


  • Initial hypothesis = “Inventory accounting is an accurate record of stock”.
  • Alternative hypothesis = “Stock accounting is not an accurate record of inventory”.

The inventory reliability is too low if the actual values differ too much from the accounting values. In this case, the inventory results must be completely discarded, even if the total value is possibly permissible. As a rule, however, it depends on the auditor and the value of the missing item. Example: If a counting error is found during an inventory check for copy paper; does this miscount have a different weighting than if the miscount is found for high-priced products. In each case, a check compares the stock quantity with a zero-tolerance limit.

Inventory summary

Under commercial law, the inventory is a physical inventory by means of which the type and quantity of assets and liabilities are recorded on a specific date. This is usually carried out by means of an annual inventory count, a continuous or time-delayed physical inventory or an inventory sampling. Certain principles must be observed to ensure that the balance sheet and accounts are properly prepared.

*Source: Vahlens großes Auditing-Lexikon, Seite 638, ‚Homograde Stichprobe‘.

For more information about inventory, see also Storage Costs and Inventory Costs

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