Valuing stock: why your purchases aren't a cost yet
Written by Ilias Aarrass7 min read · Published on · Last reviewed on 
In short
Stock becomes a cost only when you sell it: your cost of goods sold is opening stock plus purchases minus closing stock, and the rest sits on your balance sheet.
- You value stock at cost excluding VAT, including freight and import duties; storage and shipping to your customer do not belong in it.
- Only hard-to-sell goods may be valued lower; fixed maximum write-down percentages apply to textiles, clothing, furniture and upholstery.
- Record the 31 December count on a count sheet with item, quantity and unit cost, and keep it with your annual accounts.
- You reclaim the VAT on purchases in the period of the invoice, even if the goods are still unsold on the shelf.
If you sell products, stock is often your largest cost item, and at the same time the item that most often goes wrong at year-end. The heart of the problem: money you spend on stock isn't a cost yet. This article explains how stock valuation works, what to record on 31 December and how to write down obsolete items.
Why buying stock isn't a cost yet
If you buy 10,000 euros of goods for resale and sell none of it in December, your profit hasn't fallen by 10,000 euros. You've converted money into an asset: the stock sits on your balance sheet. Only when you sell an item does its purchase price become a cost, the cost of goods sold. That feels illogical when you look at your bank account, but it ensures your profit reflects your actual margin rather than the moment you happened to buy.
For VAT it works differently: you simply reclaim the VAT on your purchase in the period you receive the invoice, even if the goods are still sitting unopened on the shelf. So VAT and profit determination follow a different rhythm here.
The calculation that determines your profit is therefore not 'what did I buy', but this: opening stock plus purchases minus closing stock. That amount is your cost of goods sold.
Worked example: from purchases to cost of goods sold
- Stock on 1 January
- € 3,000
- Purchases during the year
- € 10,000
- Stock on 31 December
- € 4,000
- Cost of goods sold
- € 9,000
Result: You spent € 10,000, but only € 9,000 hits this year's profit. The remaining € 1,000 sits on your balance sheet as an asset
At what value do you put stock on the balance sheet?
The basic rule is: cost price, or the lower market value if that is lower on the balance sheet date. Cost price is what you paid for the item excluding VAT, plus the costs you had to incur to receive it, such as freight and import duties. If the value has fallen below what you paid because the goods have become hard to sell, for instance after a model was superseded, you may value them at that lower amount. If you trade in textiles, clothing, furniture or upholstery, fixed maximum write-down percentages apply. If you sell identical items bought at varying prices, use a consistent method, for example average purchase price or first in, first out. Don't switch methods every year.
What exactly belongs in that cost price is where things often go wrong in practice.
| Cost item | In the stock value? |
|---|---|
| Purchase price excluding VAT | Yes |
| Freight and shipping from your supplier to you | Yes |
| Import duties and customs charges | Yes |
| Purchase discount or bonus received | Yes, as a deduction |
| Storage and warehouse costs | No, ordinary operating costs |
| Shipping costs to your customer | No, selling costs |
| VAT you have reclaimed | No |
Goods in transit and on consignment
The question is not where the goods are, but whose they are on 31 December. If you have ordered and paid for goods still at sea, they count as soon as the risk lies with you, even though they are not in your warehouse. Conversely, stock you hold on consignment that remains your supplier's property does not belong on your balance sheet. If you sell through a fulfilment partner or a marketplace, the stock in that warehouse does count; see bookkeeping for e-commerce.
The stock count on 31 December
Your stock on the balance sheet must match what's actually there. So count your stock around year-end and record that count on a count sheet: item, quantity, cost price per unit and the total, with the date. Keep that sheet with your annual accounts. It is one of the first documents an auditor asks for in a books investigation, and without a count your stock value is no more than an assumption. If you use a stock system, still do sample counts, because in practice systems almost always drift slightly from the shelf.
- Count as close to 31 December as possible, preferably on a day you are not selling.
- Note the quantity and cost price per unit per item, not the selling price.
- Add the date and a signature, and keep the count sheet for seven years; see record retention.
- Set damaged and obsolete items aside separately, so you can write them down individually.
- Compare the outcome with your stock system and investigate large differences before finalising the figures.
Obsolete and damaged stock
Stock you realistically won't sell at cost price doesn't have to stay on your balance sheet at that price. Think of seasonal items from two years ago, damaged goods or products you can only shift at a discount. Write those down to what they'll still fetch; that lowers your profit in the year the value fell. If you actually dispose of goods, record it with a short note and photos where possible. Without support, a large write-off is an invitation to questions.
What's sensible to do?
Schedule your stock count in the last days of December or the first of January, and do it properly: this is the moment that determines your profit. What else to arrange before 31 December is in the year-end checklist for freelancers. Also look critically at what has been sitting too long, because an inflated stock value makes your profit look higher than it is and so costs you tax on money you'll never see. If you're unsure about valuing a batch, send us your count sheet; we're happy to look at it during the year-end close.
Frequently asked questions
Does a large purchase in December lower my tax?
No. What you buy but have not sold sits as stock on your balance sheet on 31 December and does not hit your profit. You do reclaim the VAT on that purchase in the current period.
At what value do I put my stock on the balance sheet?
At cost price excluding VAT, including freight and import duties, or at the lower market value if that is lower on the balance sheet date. Storage costs and shipping to your customer do not belong in it.
Must I really count by hand if I have a stock system?
A full count is safest, but sample counting works too, provided you investigate the differences. Systems always drift a little in practice through breakage, theft and wrongly booked returns.
How do I book stock I throw away?
As a write-off against your profit in the year the value disappeared. Record what it was, how much and why, with photos for a larger batch. Without substantiation a sizeable write-off stands out.
Does stock still in transit count?
Yes, as soon as the risk lies with you under the delivery terms, even if the goods have not physically arrived. Consignment stock that remains your supplier's property does not count.
Does this also apply if I buy second-hand goods?
Stock valuation works the same. For VAT the margin scheme may apply, under which you reclaim no input VAT but remit VAT on your margin. See the margin scheme.
Sources
- Valuing stock in your businessBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
