Service inventory

When a company sells goods, at the end of the year it must take stock of the inventory it has in its warehouse: if its value has decreased compared to the value it had at the beginning of the year, it must record an expense in its accounting (as inventory has been consumed); if its value has increased, it must record income.

Well, keep in mind that if your company provides services, you may also need to account for inventory. Specifically, this will happen if you work on projects and incur expenses that have not yet been invoiced by the end of the year (for example, because you invoice when the project is completed).

In these cases, when closing the accounts at the end of each year you must activate as inventory the expenses attributable to the projects that have not yet been completed and invoiced at the end of the fiscal year. Later, when the project is completed and you record the income from sales, you will be able to write off the inventory and account for the corresponding expense.

For example, suppose your company is dedicated to industrial engineering and in October of this year starts a project that will end in June 2027. Well, if by December 31,2026, you have incurred 13,600 euros in expenses that are attributable to that project (salary of the responsible engineer, travel expenses, office supplies, models...), when closing the accounts for 2026 you must account for an income from inventory variation of 13,600 euros. This income will offset the expenses that you have accounted for and that are attributable to the project. In 2027, when invoicing the project, you will be able to write off this inventory and account for an expense for inventory reduction (also of 13,600 euros).

If you provide ongoing services (consulting, security...), you should not account for inventory, as your right to collect for the services rendered up to December 31 already exists at that date (in the case of project services, on the other hand, the right to collect does not arise until the project is completed). In the case of ongoing services, account for the income earned until the end of the year (even if you collect it in the following month) and deduct all accounted expenses.

 

When the time comes to close your company's accounts, consult us. Our professionals will resolve any questions you may have regarding this matter.