A stock count compares what is physically on your shelves with what your records say should be there. The difference — shrinkage from theft, damage, wastage, expiry or recording mistakes — is written off as an expense so your stock and profit figures are true.
KhataIN Business lets you create a stock count, enter counted quantities, see the variance per item and post the adjustment.
Why count stock at all?
Your records cannot see a broken bottle, an expired packet, a sale billed under the wrong item or goods that walked out the door. Only a physical count shows what is really there.
If you never count, your balance sheet shows stock you don't have, your cost of goods sold is too low and your profit is overstated — you pay tax on profit you never earned.
How often should you count stock?
| Type of count | What you count | How often |
|---|---|---|
| Full count | Every item in every location | At least once a year, at Ashadh end before closing the fiscal year |
| Cycle count | A small group of items each time | Weekly or monthly, rotating through all items |
| Spot check | High-value or theft-prone items | Any time, without warning |
What is a cycle count?
Instead of closing the shop for a day to count everything, you count a few items at a time:
- Fast movers and costly items (mobile phones, cooking oil, liquor) — count every week or two.
- Normal items — count once a month or quarter.
- Slow, cheap items — count a few times a year.
Fix differences straight away, while people still remember what happened.
How do you run a good count?
A worked example
A grocery shop counts at Ashadh end:
| Item | Records | Counted | Difference | Cost per unit | Value |
|---|---|---|---|---|---|
| Rice, 25 kg bag | 120 | 116 | − 4 | Rs 2,100 | − Rs 8,400 |
| Cooking oil, 1 litre | 300 | 290 | − 10 (expired) | Rs 280 | − Rs 2,800 |
| Sugar, 1 kg | 200 | 202 | + 2 | Rs 110 | + Rs 220 |
| Net difference | − Rs 10,980 |
Before writing anything off, the owner rechecks the sugar: two packets came in on a supplier bill that wasn't recorded. Recording that bill fixes the sugar. The remaining shortage is Rs 11,200 — Rs 8,400 of rice missing and Rs 2,800 of expired oil.
How do you record shrinkage in the books?
Write the loss off by reducing stock and recording an expense:
| Account | Debit | Credit |
|---|---|---|
| Stock shortage (expense) | Rs 8,400 | |
| Expired and damaged stock (expense) | Rs 2,800 | |
| Inventory | Rs 11,200 |
Keep shortages and expiry in separate expense accounts so you can see which problem is growing. Write the reason on each adjustment, keep the count sheets signed by the counters, and keep evidence of disposal for expired goods.
If you claimed input VAT on goods that were later lost or destroyed, ask your tax adviser whether that VAT needs adjusting — see VAT in Nepal.
How do you reduce shrinkage?
- Record every movement — purchases, sales, returns and internal use — the same day.
- First expiry, first out — put older stock in front.
- Lock up high-value items and limit who can adjust stock in your system.
- Look for patterns — the same item, shift or location short again and again.
Frequently asked questions
How often should a small shop do a full stock count?
At least once a year, at the end of the fiscal year (Ashadh end), so the closing stock in your accounts is correct. Add cycle counts every week or month for fast-moving and high-value items so problems surface early.
What is the difference between shrinkage and wastage?
Shrinkage is any stock you expected to have but don't — through theft, errors or unrecorded damage. Wastage is a known, recorded loss, such as food spoiled in a restaurant kitchen or goods that expired. Both reduce stock and are recorded as expenses, ideally in separate accounts.
Does stock loss reduce my taxable profit?
A genuine loss of business stock is part of the cost of running the business and reduces profit. Keep count sheets, reasons and disposal evidence in case the tax office asks, and check the treatment with your accountant or tax adviser.