Inventory Accounting: What a Trading Business Needs to Know

What Is Inventory Stocktaking?

Stocktaking is the detailed counting, recording and valuation of all a business’s inventories at a specific point in time, usually at the end of the financial year. It includes goods for sale, raw and auxiliary materials, work in progress and finished products. Its purpose is to confirm that actual physical inventories agree with accounting records and to determine correctly the business’s cost of goods sold and financial result for the year.

Which Businesses Must Take Inventory?

Under Greek Accounting Standards (Law 4308/2014), every entity holding inventories must, in principle, value them at the end of each financial year. However, from 2026, very small businesses keeping single-entry books (category B) may, subject to conditions, be exempt from annual physical stocktaking, because inventory changes have a limited impact on their financial results.

The “N+3” Rule for Voluntary Stocktaking

If a business eligible for exemption nevertheless chooses voluntarily to take inventory in a particular financial year, it must continue taking inventory for the next three consecutive financial years. This means that voluntary stocktaking is not a year-by-year decision but a commitment for a total period of four years.

Physical Stocktaking Step by Step

1. Appoint a person responsible for the physical count and a person responsible for the accounting inventory, usually different people to allow cross-checking
2. Identify all physical storage locations of the business, with a separate count for each location (shop, warehouse or factory)
3. Physically count each item, recording its description, unit of measurement and quantity
4. Separately record third-party inventories on the business’s premises, as well as the business’s inventories held at third-party locations
5. Value each item using the appropriate method (purchase cost, weighted average cost or another accepted method)
6. Compare the physical findings with accounting balances and reconcile any differences

The procedure must be completed before transactions begin in the new financial year, so that opening inventory for the new year is based on verified information.

Why Accurate Inventory Tracking Matters Beyond Compliance

Beyond the legal obligation, regular and accurate inventory tracking helps a business identify losses from damage, theft or incorrect deliveries promptly, avoid either tying up excessive capital in slow-moving stock or shortages that lose sales, and obtain a more accurate picture of actual profitability by product or category.

An Example: A Small Retail Shop

Suppose a small clothing shop keeps single-entry books and, based on its turnover, is eligible for exemption from mandatory annual stocktaking in 2026. The owner nevertheless decides to carry out a full physical stocktake voluntarily that year, suspecting significant losses due to theft.

Having chosen to take inventory despite qualifying for exemption, the business is now committed to continuing stocktaking for the next three financial years (through 2029), even if turnover remains at levels that would normally allow exemption. The decision must therefore be weighed carefully, taking into account the cost and time required for the procedure in subsequent years.

Inventory Valuation Methods

Inventories may be valued using different accepted methods, depending on the nature of the activity:

• The specific identification method, suitable for businesses with a small number of expensive, easily identifiable items
• The weighted average cost method, widely used for items with a high transaction volume
• The gross profit margin method, which determines closing inventory value and cost of goods sold directly without requiring quantities to be established, particularly suitable for retailers with many items and a relatively stable profit margin

The chosen method must be applied consistently from year to year so that financial results remain comparable.