Dead stock is a term that’s used for goods in your inventory that you’re unable to sell.
Inventory is a term used for goods you’ve made to sell, the material you’re gonna use to make these goods, or goods you’ve bought for resale. If you sell goods, your inventory is a very important part of your assets.
Dead stock—items that can’t be sold—reduces the value of this asset, which should be reflected in your bookkeeping.
When does stock become dead stock?
Dead stock can be used about both items you’ve made as well as items that you’ve bought for resale.
Inventory becomes dead stock for several reasons:
- You’ve ordered or made more items than there is demand for
- The items are defective or poorly designed
- The items were created for a specific time period
- The items no longer meet industry standards
- The items have been replaced by better items
Dead stock can also be called obsolete inventory or obsolete goods.
It’s important to keep on top of your inventory
When you sell goods, the items in your inventory generate the main part of your revenue. It’s important to track and assess your inventory regularly.
To manage your inventory in a good way, it’s important to have a system in place, whether that’s a detailed spreadsheet, or—ideally—an inventory management system.
You also need to do an annual stock take to ensure that your numbers are correct, and to identify any damaged or obsolete items. Items can also get lost or stolen. You can of course do a stock take more often than that—which might be a good idea if you have a large inventory, or a lot of turnaround.
Once you have a correct overview of your inventory, you can use these numbers and other data about your business to file taxes, make good business decisions, and to budget for the future.