The inventory is the procedure for determining the actual state of total assets and liabilities of a legal entity (and entrepreneur) on a certain day during the business year.
Why is it important to carry out the inventory procedure? The main goal of the inventory is to conciliate the state of assets and liabilities shown in the business books with their actual state, so that the financial statements of the legal entity objectively and truthfully show its financial state and work performances. In addition to this basic goal, the inventory is also one of the ways of controlling the work of persons entrusted with the management of certain assets (e.g., store manager). Two legal acts deal with the subject of inventory- the Law on Accounting (“Official Gazette of the RS”, no. 73/2019 and 44/2021 – other law – hereinafter: the Law), and the Rulebook on the method and deadlines for carrying out the inventory and harmonizing the accounting state with the actual state (“Official Gazette of the RS”, No. 89/2020), and each legal entity can formulate an internal general act that will regulate the specifics of the inventory.
Who is obligate to conduct the inventory? All legal entities and entrepreneurs, regardless of their legal form and activity. Inventories are carried out as regular in the following situations – at the beginning of business, at the end of the business year, i.e. on the day of the balance sheet (regular or annual) as well as during the handover of the duties of the accountant, changes in the selling prices of products and goods in the retail store and in other cases provided for by law (extraordinary inventory).
What is listed? The subject of the inventory is the total property owned by a legal entity, regardless of where it is located. If, during the inventory, it is determined that the legal entity has other people’s property in the state, then the legal entity has the duty to list this property on special inventory lists, and deliver them to the owner of that property no later than ten days from the day the inventory was performed.
Assets and liabilities are listed with the balance as of December 31 of the year for which the list is made.
If a legal entity, however, keeps permanently quantity and value records of the entry and exit of assets, as the balance on December 31, it can enter its accounting balance on that day, provided that an inventory of assets was carried out during the year and that surpluses and deficits determined by that list, registered on the basis of the decision of the competent authority of the legal entity, that is, the entrepreneur.
How is the inventory conducted? Usual actions in the organization and implementation of the inventory are also defined by the Law and regulations.
Thus, before conducting the annual inventory, it is necessary to undertake certain preparatory actions, the purpose of which is to ensure that the inventory is conducted without interference and that it presents objective facts. Some of the usual preparatory actions are harmonizing the turnover and state of the general ledger with the diary and auxiliary books, comparing documentation with the owner of property that is for some reason located in the premises of the legal entity conducting the inventory, harmonizing the mutual claims and obligations of the legal entity with its debtors and creditors with appropriate documents (IOS), formation of inventory commissions and adoption of a inventory implementation plan, preparation and printing inventory lists… Inventory commissions carry out an inventory by counting, measuring and other usual actions in order to determine the quantities and actual state of property, and to determine shortages and surpluses, as well as stock of lower quality, damaged and unusable stock… Once the entire property has been inventoried, the inventory commission prepares the Report on the inventory conducted.
The report is submitted no later than 60 days before the deadline for submitting the regular annual financial report, i.e. no later than 30 days after the completed inventory during the year, i.e. by the end of January, to the competent authority of the legal entity, the internal auditor, and if the legal entity is subject to a mandatory audit and to the audit company with which it concluded the audit contract.
The report on the conducted inventory contains the minimum elements prescribed by law, which include a proposal to book the determined deficits and surpluses of assets.
In the practice of most legal entities, the question arises of the responsibility of employees who are entrusted with the management of property for damage to that property (deficit), although surpluses may also indicate improper keeping of records on the entry and exit of goods. The question of determining and possibly collecting damages caused by an employee to the employer in this way is only roughly regulated by the Labor Law and the Law on Obligations, and the procedure for determining damages is left to the employer to be regulated by an internal general act.
The competent body in the legal entity has a deadline of 60 days (before the deadline for submitting the regular annual financial report) to issue a Decision on the adoption of the Report on the completed inventory and the recording of identified non-conformities, all with the aim that the financial reports of the legal entity objectively reflect the financial situation and the success of the work of the legal entity. According to Article 44 of the Law, legal entities and entrepreneurs are obliged to submit regular annual financial reports for the reporting year to the Agency for Economic Registers, for statistical purposes and for public publication, by March 31 of the following year.
Disclaimer: This text is written for informational purposes only as well as to give general information and understanding of the law, not to provide specific legal advice. For any additional information feel free to contact us.