How should stock be valued, and why does it change my profit?
Stock is valued at cost, and the question is what counts as cost. The factory price alone understates it; the correct figure includes freight, duty and inland transport — the landed cost. This matters beyond the balance sheet: cost of goods sold comes from the same number, so understating unit cost overstates every margin you report and every pricing decision you make from it.
Two ways to get it wrong
Understating. Only the factory price is recorded. Margins look healthy, pricing decisions are made against a number that was never real, and the gap shows up as an unexplained difference at year end.
Overstating. Selling costs, marketplace fees or advertising are pushed into stock value. Stock looks larger than it is and the loss arrives later, in one lump.
Unsellable stock
Units that are damaged, expired or stranded are not worth cost. Carrying them at cost keeps two numbers wrong at once: stock value and profit. Writing them off is unpleasant and correct.
Why marketplace sellers feel this more
Fees are percentages and tiers applied on top of your cost. A 15% error in unit cost does not produce a 15% error in margin — on a 6% margin it can produce a loss. The sensitivity is highest exactly where margins are thinnest.
Checklist
- Does unit cost include freight and duty, not just the purchase price?
- Are selling costs kept out of stock value?
- Are damaged and stranded units written off rather than carried?
- Does the profit report draw COGS from the same unit cost?
Frequently asked questions
What should be included in stock cost?
The purchase price plus the costs of getting it into your warehouse: freight, duty, insurance and inland transport. Selling costs are not part of stock value.
How does stock valuation affect profit?
Cost of goods sold is drawn from the same unit cost. Understate it and every margin looks better than it is.
What about stock that cannot be sold?
Damaged and unsellable units should be written off rather than carried at cost. Carrying them inflates both stock value and apparent profit.