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
Annex A: Retail/Manufacturing
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.
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).
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).
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.
- 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 A of 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.
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