Are you feeling overwhelmed when you think about preparing your business’s annual inventory listing? Don’t worry, you’re not alone. Many business owners feel the same way. However, it’s important that you take the time to prepare an accurate inventory listing so you can keep track of your company’s finances. In this blog post, we’ll outline the steps you need to take to get started. We’ll also provide some tips on how to make the process easier. So, what are you waiting for? Let’s get started!
The BIR requires businesses to trade or sell goods to submit the annual inventory listing before January 30. If you’re required to submit this document, here are the proper ways to make the yearly inventory list and the sworn statement. In this article, I’ll show you how to compute unit costs according to the BIR standards.
What is Annual Inventory Listing
The Bureau of Internal Revenue issued Revenue Memorandum Circular No. 57-2015. This memorandum requires all those businesses to sell goods or items, real estate dealers or developers, manufacturers, retailers, wholesalers, and those involved in construction.
Who are Required to File Inventory Listing
In this memorandum, every business must submit a list of all inventories, supplies, and materials at the end of the calendar year. This annual inventory listing must include the sword statement. Furthermore, this memorandum also consists of the different templates for the annual inventory list BIR.For more details, check the BIR website.
How To Prepare Inventory Listing
This template is for the Retail/Manufacturing, Real estate Industry and, Construction Industry. For discussion purposes, I’ll be focusing on the retail, wholesaler, and manufacturing business. Since most of the companies are engaged in this industry, see the templates here.
What Template Should You Use to Prepare Inventory Listing
Use this template if you are engaged in selling items both online or not. This template includes those who are selling dry goods. However, it excludes anyone who is rendering services to the clients. Examples are a salon, barbershop, and even boarding house.
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Annex B: Real Estate Industry
This template is available for engaging in buying and selling natural properties or even real estate developers.
Annex C: Construction Industry
Those who are engaged in construction and contractor agents must use this template.
How To Do Inventory Listing BIR- Step-by-Step
You might not be familiar with many columns or not sure how to fill up that column. To make sure you’re doing it right, I’m going to explain each term and column. Let me use Annex A for retail and manufacturing companies.
Column 1: Product/Inventory Code
In this column, you have to indicate all the unsold stocks you have. Suppose you maintain the coding for each item or product that would be better. However, you can use a short inventory code that could help you to differentiate.
Column 2: Item Description
Make a brief description of your items or products. For example, you can mention the brand name or use it as white or brown for sugar.
Column 3-5: Location
These columns are used if your products or items are on consignment, parked goods, and goods you put on consignment.
In the address, you need to specify the business location, not the personal address. If the private address is the same as the business, then you can use it.
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Besides, four codes are mentioned in the template. Let me tell you what code you should for your goods on hand and goods on consignment.
CH- are goods or products that are were consigned. To make it simple, let me give you an example. Let us say that you have a friend who requested to sell his products in your business stores. Although you have those items basically, the unsold items are still owned by the consignor or the one who puts his goods on your business.
P- these are parked goods owned by related parties. These items are not for sale nor consignments. You assume that your friend or family-related business asked you to store their supplies in your business warehouse.
O- These are your goods. So it means you owned these items.
CO- If you have other goods or items sent for consignment are still your inventory as long as it is unsold. These items as consignments should have duplicate records in the consignee’s forms. The BIR will investigate any differences in the reported stock. So make sure that your descriptions of items are the same as the consigned goods or commodities.
Column 6: Inventory Valuation Method
In this column, you have to specify what method you use to arrive at your unit cost per item or product. There are many inventory valuation methods, but not all accounting inventory valuation methods are acceptable by the Bureau of Internal Revenue.
For the discussion, I’ll mention only three of those inventory valuations for the annual inventory list. These methods are a weighted average method, FIFO, and Specific Identification.
Total Sold items at the end of the year were 65. What would the unit price on the annual inventory list?
FIFO or First-in-First-Out
This inventory valuation is commonly used today. To make it simple, I’ll give you little data to help you understand how quickly.
The unit price should be 10.15/pc. Why do we use the unit price? Because we assume that all items sold were from the dates starting February up to September 3, 2020. However, we’ve noticed that the total unsold are a portion of the items bought on September 3, 2020.
Weighted Average
This method is the simplest way to compute or determine the unit price of each item or product. To calculate the unit price is to divide the total amounts by the total quantity purchased.
Based on the above data, the unit price is computed as 10.03/pc(792.25/79).
Specific Identification
This method of inventory valuation is usually used by real estate/dealers. This method is generally proper when there is little inventory with a higher unit price.
Column 7: Unit Price
In this column, you will indicate the unit price we computed based on the inventory valuation method you’re using. Unit cost means the price you pay for the goods or items bought, not the selling price.
Column 8: Unit of Measurement
This column indicates how you measure the goods or items. For example, these measurements are kilos, grams, liters, packs, pieces, dozens, etc.
Column 9: Total Weight/Volume
The information you will put here is the unsold items. So, for example, you have to indicate how many kilos are left or still unsold as to sugar.
Column 10: Total Cost
To determine the total cost, you multiply the total weight/volume(column 9) by unit price(column 7).
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How to fill up the Sworn Statement
This document is necessary when submitting the annual inventory listing to the BIR. Here is the information you need to indicate in the bullets. I’m sure some of the missing data are understandable, but there are some you might be asking.
Let me tell you about the first two bullets.
The first line you have to indicate if you’re engaged in stock-in-trade, materials, supplies, etc. In this line, if all the inventory list is for sale, you have to indicate stocks-in-trade. However, in some cases, you might use materials to show those inventories are not for sale. For example, the construction industry needs to submit a list listing, but those inventories are not for sale. So it means they have to indicate as materials.
The following line in the first bullet is you have to indicates what template you used. For example, it could be Annex A or B, etc.
The second bullet is to mention what RMC number. In this case, it is the RMC 57-2015.
Related:New BIR Form 1709 issued for Related Party Transactions
Important Points
Make sure the cost of ending inventory to be indicated in the inventory listing must equal or the same amount of ending inventory presented in your financial statements. Doing so will avoid future penalties and surcharges.
In submitting your inventory listing, you must provide hard copy and soft copy. Either you use DVD-R to store the inventory listing or USB.
Don’t forget to notarized the Sworn Declaration before submitting to the BIR. Secure three copies.
If you don’t have ending inventory, you are still required to submit a hard copy of inventory listing and/or DVD or USB depending the RDO.
How To File Annual Inventory Listing
Aside from the annual inventory listing prepared, the following documents must be submitted:
For taxpayers with tangible asset-rich balance sheets with at least half of total assets in working capital assets – hard and soft copies of schedules/lists prescribed herein, using the format provided in Annex Aof this Circular for manufacturing/merchandising or retail companies, Annex B and B-1 for real estate companies, and Annex C for those in the construction industry.
Regular Taxpayers – soft copies of inventory list including other applicable schedules stored in a properly labeled DVD-R. This should be submitted with a notarized certification, as provided under Annex D of this Circular, duly signed by the authorized representative of the taxpayer.
If you have any questions, please drop in the comment section. We’re happy to assist you.
The soft copies of the Inventory List and the additional schedules and reports must be submitted via an accurately labeled DVD-R, along with a Notarized Certification signed by the authorized representative of the taxpayer. This Certificate is to certify that the information contained on the DVD-R is true and accurate.
In submitting your inventory listing, you must provide hard copy and soft copy. Either you use DVD-R to store the inventory listing or USB. Don't forget to notarized the Sworn Declaration before submitting to the BIR. Secure three copies.
All taxpayers maintaining saleable inventories/inventories intended for sale are required to submit the enhanced inventory list even is there is zero balance of such inventories at the end of the year.
Businesses generally must use inventories for income tax purposes when necessary to clearly reflect income. To clearly reflect income, businesses must take inventories at the beginning and end of each tax year in which the production, purchase or sale of merchandise is an income-producing factor.
Inventory is listed on a company's balance sheet as a current asset, and it acts as a buffer between manufacturing and order fulfilment. On the income statement, when an inventory item is sold, it's carrying cost transfers to the cost of sold goods (COGS) category.
Through the use of the downloadable eBIRForms Software Package (also known as the Offline Package), taxpayers and Accredited Tax Agents (ATAs) will be able to fill up tax returns offline and submit it to the BIR through the Online eBIRForms System.
Some BIR district offices (Revenue District Offices or RDOs), allow freelancers to maintain two (2) sets of books (i.e., Cash Receipts Journal and Cash Disbursements Journal), while some RDOs issue one (1) book (i.e., Simplified Set of Bookkeeping Records for use by small merchants).
1. Compliance: Any corporation, company, sole proprietorship, partnership or individual required to pay tax in the Philippines must maintain books of accounts under Philippine law.
Not keeping track of inventory levels can lead to stock out of popular items during a sudden surge in demand. This can happen due to peak season or other external factors. Having sufficient stock is crucial.
At some point, you're going to lose inventory to theft, damage or obsolescence. When this happens, you need to record the loss on your company's income statement to keep it updated.
Inventory is written down when goods are lost or stolen, or their value has declined. This should be done at once, so that the financial statements immediately reflect the reduced value of the inventory.
Inventory is the raw materials used to produce goods as well as the goods that are available for sale. It is classified as a current asset on a company's balance sheet. The three types of inventory include raw materials, work-in-progress, and finished goods.
Inventory is made up of all the items that a business has on hand to sell, as well as all of the goods that the company will use to manufacture income-producing goods. While inventory is not directly taxable, it is used to calculate a business's cost of goods sold, or COGS.
Using an inventory tracking software/system is the most efficient inventory tracking method as it ensures greater transparency and accuracy than other methods.
The best way to keep track of inventory is with an easy-to-use, robust inventory management software system. With inventory management software, you can get real-time alerts, add meaningful pictures to your inventory list, and utilize barcodes and QR codes to automate otherwise tedious, error-prone processes.
Treating inventory as non-incidental materials and supplies means that you can deduct your cost at the later of: when you bought the product or when it's used or consumed.
While there are many types of inventory, the four major ones are raw materials and components, work in progress, finished goods and maintenance, repair and operating supplies.
Inventory refers to all the items, goods, merchandise, and materials held by a business for selling in the market to earn a profit. Example: If a newspaper vendor uses a vehicle to deliver newspapers to the customers, only the newspaper will be considered inventory. The vehicle will be treated as an asset.
Inventory items usually are physical assets companies can measure and count. For example, a bakery would list all the ingredients needed to prepare its treats — like flour, sugar, yeast, salt and milk — as inventory items. Baking pans and ovens are not inventory; they're capital equipment.
No need to fall in line at a BIR Revenue District Office (RDO) or a bank to pay taxes. You can now pay this in the comfort of your home if you have a bank account, credit or debit card, or even a mobile wallet.
Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1702Q, together with the required attachments.
Receive your copy of the duly stamped and validated form from the RDO.
Yes, even for online businesses: in 2013, BIR issued Revenue Memorandum Circular (RMC) 55-2013 covering taxpayers' obligations for online business transactions.
When is bookkeeping not required? Where the income does not exceed Rs 1,20,000 or total sales, turnover or gross receipts are not more than 10,00,000 in all preceding 3 years — no books of account are required to be maintained.
Cash book − only cash related receipts and payments are recorded. General ledger − All business financial transactions. Debtor ledger − Provides information about the credit sales (related to customers).
The registration of a new set of manual books of accounts shall only be at the time when the pages of the previously registered books have all been already exhausted, provided, that the portions pertaining to a particular year should be properly labeled or marked by taxpayer.
As per the GST Act, every registered taxable person must maintain the accounts books and records for at least 72 months (6 years). The period will be counted from the last date of filing of Annual Return for that year.
– All taxpayers are required to preserve their books of accounts, including subsidiary books and other accounting records, for a period of ten (10) years reckoned from the day following the deadline in filing a return, or if filed after the deadline, from the date of the filing of the return, for the taxable year when ...
Assessees are required to preserve the specified books of account for a period of 6 years from the end of the relevant assessment year, i.e., for a total period of 8 previous years.
The Bureau of Internal revenue (BIR) - issued Revenue Regulations (RR) No. 17-2013 - requires taxpayers to preserve their books of accounts, including subsidiary books & other accounting records, for a period of ten years.
Yes.Inventory tax is a “taxpayer active” tax. That means that it must be calculated by the taxpayer (business owner). Unsold inventory should be counted and valued based on one of the three accepted valuation methods: cost, retail, or lower of cost or retail.
Inventory is made up of all the items that a business has on hand to sell, as well as all of the goods that the company will use to manufacture income-producing goods. While inventory is not directly taxable, it is used to calculate a business's cost of goods sold, or COGS.
If you're a sole proprietor, you'll have to file a form 1040 schedule C: Profit or Loss From Business, along with your individual tax return to report your earnings from your business. Inventory shrinkage is reported on line 39 (other costs) under Part III: Cost of Goods Sold, with an attached explanation.
The first-in, first-out (FIFO) inventory cost method assumes the oldest inventory is sold first. This leads to minimizing taxes if the prices of inventory items are falling.
An inventory report is a summary of the amount of inventory a business has on hand at a given time. The inventory report is a physical or electronic document with numbers representing product you're able to sell now, inventory you are ordering, or inventory you need for internal business use.
tax methods. In regards to GAAP, once you have identified inventory that you cannot sell, you must write this inventory off as an expense. Assuming no receipt of payment for the inventory, you will debit a cost of goods sold account and credit either inventory directly or your inventory reserve account.
Inventory refers to all the items, goods, merchandise, and materials held by a business for selling in the market to earn a profit. Example: If a newspaper vendor uses a vehicle to deliver newspapers to the customers, only the newspaper will be considered inventory. The vehicle will be treated as an asset.
At the end of the year, your business will be taxed on your profits, which your inventory indirectly affects because it will lower your earnings. This will then reduce your taxable income. Your profits are your total revenue minus the cost of goods sold (COGS).
Can I write off expired inventory? Expired inventory can be written off as if it were lost or damaged because it has lost its market value and can no longer be used for its normal intended purposes.
Subtract the cost of goods sold from the total inventory to get the loss. If your cost is $320,000 and your inventory is $850,000, your inventory loss equals $530,000.
Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.
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