Valuing e-commerce inventory at year end

First question: where exactly is the stock

Before any valuation there has to be a perimeter. For an online seller the goods are rarely in one place, and some of them appear on no dashboard at all.

• Units in the marketplace's warehouses, spread across several centres and sometimes several countries.
• Units in transfer between two warehouses, which show up fully neither at the origin nor at the destination.
• Units at a third-party logistics provider, which keeps its own inventory.
• Goods in transit from the supplier, whose ownership depends on the agreed delivery terms.
• Customer returns received but not yet put back into stock.

The figure the platform shows is a physical state at a point in time. It is neither an accounting perimeter nor a value.

Second question: which cost to use

Inventory is carried at acquisition cost, which is not limited to the supplier's invoice. It also includes what was spent to bring the goods to their present location and condition.

For repeated purchases at different prices, a cost-flow method has to be chosen and applied consistently from one year to the next. Changing it between years makes comparisons unusable and has to be justified where it happens.

Third question: what to do with discrepancies

Gaps between the theoretical and the physical count are normal in outsourced logistics: units lost, damaged, mis-scanned, or refunded to a customer with no return ever arriving. The platform compensates some of those, with a lag.

Two flows should be reconciled rather than offset: units leaving without a sale on one side, reimbursements received on the other. Netting them hides the cause, which is the useful information. A discrepancy rate that climbs points to a packaging, listing or provider problem long before it is an accounting problem.

Fourth question: the units that will not sell

Inventory is written down when its likely realisable value falls below cost. In e-commerce the signal usually arrives before the decision: the long-term storage fees the platform charges identify precisely the units that have stopped moving.

The same reasoning applies to unsold seasonal goods, versions superseded by a new reference, and batches whose market price has dropped below cost. Waiting for year end to look at them means discovering the loss a year after it became probable.

What to take away

• Establish the perimeter before the value: warehouses, transfers, providers, transit, returns.
• Cost includes inbound freight and duty, not storage or outbound shipping.
• Reconcile discrepancies and reimbursements rather than offsetting them.
• Base write-downs on an objective signal, not a year-end impression.