Inventory accounting in Switzerland: stocktaking and valuation

Inventory, stock and fixed assets: what is the difference?

In Swiss accounting, “inventory” can refer to a record supporting all assets and liabilities. In everyday business use, it often means goods held for sale or production. This article focuses on counting and valuing that stock.

A joinery business may hold timber, partly assembled furniture, finished furniture and workshop machinery. The first three are inventory. Machinery used in the workshop over several years is a fixed asset and follows different rules, including depreciation.

The classification depends on how an item is used. A car held for resale is inventory for a dealership. A car used for business travel is generally a fixed asset. Identical objects can therefore have different accounting roles.

What should you count, and at what date?

The aim is to substantiate the quantities belonging to the business at the balance sheet date. Do not limit the exercise to goods physically on your premises.

Article 958c of the Swiss Code of Obligations requires balance sheet items to be supported by an inventory or other appropriate evidence. It does not mean every SME must close on 31 December to count every item. A count on another date can provide useful evidence if movements between that date and year-end are reliably tracked and reconciled.

Management remains responsible for the accounts. An auditor’s attendance at a stocktake does not transfer that responsibility to the audit firm.

A stocktaking method in six steps

1. Define the counting areas. Number locations and assign each area to a team.
2. Prepare item references. Use consistent product identifiers across purchases, sales and inventory records.
3. Control stock movements. Temporarily suspend receipts and dispatches, or record them precisely during the count.
4. Count and assess condition. Record quantities, units of measurement, damage and old stock.
5. Recount significant differences. Establish the cause before changing the records.
6. Approve the reconciliation. Retain count sheets, dates, responsible staff and authorised corrections.

Counting in pairs and using independent checks are good practices to adapt to your business. There is no uniform requirement for every small business to assign two people to every count.

How do you calculate inventory value?

On initial recognition, inventory is measured at no more than its acquisition or production cost. Purchase cost takes account of directly attributable costs and discounts received. Recoverable VAT normally falls outside inventory cost; non-recoverable VAT may form part of it.

For manufactured goods, production cost needs a documented calculation covering materials consumed, production labour and attributable overheads. The expected selling price cannot replace that calculation.

When interchangeable items are purchased at different prices, two common methods allocate their cost:

• First in, first out (FIFO): the earliest purchases are treated as sold first for costing purposes. Closing inventory therefore reflects the most recent purchase costs.
• Weighted average cost: the total cost of the available goods is divided by the corresponding quantity.

These are cost allocation conventions. FIFO does not necessarily mean the business physically tracked and sold the oldest individual units first. An average cost may be recalculated after each receipt or over a period, depending on the system used.

Worked example: do FIFO and weighted average give the same result?

A business starts with 100 units costing CHF 10 each and buys another 100 at CHF 14. It has 200 units with a total cost of CHF 2,400. It sells 120, leaving 80 in stock.

The closing inventory differs by CHF 160, as does profit, all else being equal. This is why consistency matters. Changing methods simply to achieve a preferred profit figure undermines comparability.

Do not adopt last in, first out (LIFO) as a default. Whether it is acceptable depends on the reporting framework; IFRS does not permit it. For an SME’s Swiss statutory accounts, the chosen method must comply with the Code of Obligations and the applicable tax treatment.

When must inventory be written down?

Under Article 960c of the Code of Obligations, if the realisable value after expected remaining costs is below cost at the balance sheet date, the lower value must be used.

For example, a batch cost CHF 5,000. It is expected to sell for CHF 3,800, with a further CHF 300 needed to complete the sale. Its carrying value should be CHF 3,500, requiring a CHF 1,500 write-down.

Document the evidence: age, recent sales, replacement products, damage and repair costs. A genuine loss in value is different from an additional hidden reserve. Their accounting justification and tax acceptability require separate consideration.

How does inventory affect profit and cash flow?

In a simplified calculation, cost of goods sold equals opening inventory plus purchases minus closing inventory. Overstating closing inventory therefore understates the expense and incorrectly increases profit. Our examples of journal entries show how an inventory adjustment is recorded.

Growing inventory can also absorb cash. A business may earn a healthy margin while tying up its funds in slow-selling products. Working capital analysis connects those operating decisions to the financing they require. For day-to-day planning, see our article on managing company cash flow.

After the stocktake, review items with no movements, repeated discrepancies and purchases exceeding demand. The year-end closing process then becomes a starting point for better ordering and loss monitoring.

Frequently asked questions