Inventory (voorraad)
Inventory comprises goods and raw materials held for sale or production. It is valued under the applicable cost price and lower-of-cost-or-value rules.
What does inventory (voorraad) mean?
Inventory comprises goods and raw materials held for sale or production. It is valued under the applicable cost price and lower-of-cost-or-value rules.
Slow-moving items may require a write-down. A product for own lasting use is not inventory but possibly a fixed asset.
How does it work?
art. 2:369 DCC distinguishes four types: raw and auxiliary materials, work in progress, finished products and goods for resale, and prepayments on inventories. Inventory is on the balance sheet for what it has cost: the acquisition cost when purchased, the production cost when made in-house (art. 2:388 DCC).
For similar items, weighted average prices, FIFO and LIFO are allowed (art. 2:385(2) DCC). If the current value on the balance sheet date is lower than the cost price, you write down (art. 2:387(2) DCC). The Richtlijnen (RJ 220, for micro and small entities B4) summarise this as cost price or lower net realisable value; only agricultural inventories may be stated at current value.
Example
A web shop BV starts the year with 40 chairs at € 50 (€ 2,000). It buys 100 units at € 50 in March and 100 units at € 60 in September and sells 180. Closing inventory: 60 units. With FIFO the oldest are sold first and 60 units at € 60 remain: € 3,600. With weighted average the price is (2,000 + 5,000 + 6,000) / 240 = € 54.17 and the inventory € 3,250. Cost of sales: 13,000 − 3,600 = € 9,400 with FIFO and € 9,750 with average. Ten chairs are damaged and still fetch € 20: write-down with FIFO 10 × (60 − 20) = € 400.
In the annual accounts
Current assets on the balance sheet; cost of sales in the P&L.
Difference from cost of sales
Inventory is what is still in stock on the balance sheet date; cost of sales is what the goods sold cost. Together they equal opening inventory plus purchases. Whoever books all purchases directly as costs and forgets the closing inventory shows too little profit in the year of purchase and too much in the year of sale.
Common mistakes
- Expensing the entire purchase while inventory remains
- Keeping obsolete inventory at full value
What to watch for
- Count the inventory on or around the balance sheet date and record the count.
- Go through items that have not been sold for a year and determine the expected proceeds per item minus selling costs.
- A micro entity includes inventory in the total of current assets (art. 2:395a(4) DCC); from small upwards it is a separate item, and medium-sized and large entities split it into the types of art. 2:369. More: valuing inventories.
Legal basis and sources
art. 2:369 DCC
Frequently asked questions
May inventory be valued at selling price?
No. The selling price contains profit that has not yet been realised. Inventory is stated at cost price, or lower if the expected proceeds are below cost price.
Is LIFO allowed?
Art. 2:385(2) DCC expressly names LIFO alongside FIFO and weighted average prices. Changing method requires a justified reason (art. 2:384(6) DCC).
Read more
Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
Get started