When a marketplace business closes its books, the hardest number to prove is usually not revenue — it is cost of goods sold. Purchase orders, goods receipts, marketplace sales and physical stock almost never land in the same system on the same day, and if any one of those four records is out of line, the gross margin on the profit and loss statement is a guess dressed as a figure. The practical way to close inventory properly is a four-way tie-out: purchases against receipts, receipts against sales, sales against closing stock, and closing stock back against the balance sheet. This article sets out the checklist order, explains why each step must match, and shows where Caigeek's finance team fits into the workflow.
Why inventory is the part of the close that quietly corrupts the P&L
Under IFRS Foundation, IAS 2 Inventories, inventory cost includes purchase costs, conversion costs and other costs incurred to bring inventory to its present location and condition, and a sold item's carrying amount is recognised as an expense in the period the related revenue is recognised. That rule is straightforward in theory. In practice, across Amazon FBA, Shopify, TikTok Shop and a sourcing entity, the purchase invoice, the warehouse receipt and the marketplace sale each live in a different system with a different date.
When those records do not tie out, the closing stock figure on the balance sheet is whatever the bookkeeper was told it was — and closing stock directly drives COGS. If closing stock is overstated, COGS is understated and profit is flattered. If closing stock is understated, the business reports a loss that may not be real. The books still balance. They are just wrong.
What the four-way tie-out actually checks
The same four figures appear in every inventory close: what was purchased, what was received, what was sold, and what remains. The checklist below proposes an evidence workflow for tying them together.
1. Purchases against receipts
Pull every purchase order for the period and match it to the goods receipt note in the warehouse system. The purchase order says what was ordered and invoiced; the goods receipt note says what physically arrived. Differences here are normal and must be explained: goods still in transit, supplier short-shipments, damaged units rejected at the door.
2. Receipts against sales
Match units received to units sold in the period, by SKU. Any unit sold must trace back to a receipt; any receipt should eventually be consumed by a sale or remain in closing stock.
3. Sales against closing stock
The formula that closes the step is opening stock plus receipts minus sales equals closing stock. Run it per SKU, then in total. If the calculated closing stock does not match the physical count or the warehouse system's balance, the difference is either unrecorded loss (damage, theft, expiry) or an unrecorded receipt.
The purpose of this comparison is to find shrinkage while it is still traceable to a period — not to accept the inventory system's word.
4. Closing stock back to the balance sheet
The closing stock figure that came out of step three must equal the inventory asset on the balance sheet. Carrying it at the right value matters. Under IAS 2, inventories are measured at the lower of cost and net realisable value, and write-downs are recognised as expenses in the period they occur. If a product line stopped selling and its net realisable value has dropped below cost, leaving it at cost overstates assets and understates this period's expense.
For a US taxpayer, IRS Publication 538 states that when merchandise production, purchase or sale is an income-producing factor, inventory is necessary to clearly show income, and taxable income uses beginning and ending inventory values with an identification method and a valuation method. IRS Publication 583 adds that inventory records should show gross receipts from inventory sales, inventory purchases, beginning inventory and ending inventory. The four-way tie-out is not an accounting theory — it is the minimum evidence set both the accounting standard and the tax recordkeeping guidance describe.
Which data sources to pull before starting the close
To run the four-way tie-out, assemble evidence before opening the books. The checklist assumes these records are available:
- Purchase orders and supplier invoices — the commercial records of what was ordered and what was invoiced
- Goods receipt notes in the ERP or WMS — the warehouse's record of what actually arrived
- Marketplace order reports — by order ID and SKU, covering recorded sales
- A physical count or cycle count result — the independent check against which the calculated closing stock is compared
If the ERP and the WMS are separate systems, export both and match on SKU and document number rather than trusting either system alone.
How a specialist ecommerce finance team runs this close
An experienced finance team does not start the close with the trial balance. They start with the evidence, in the same order as the checklist above.
First, they reconcile purchases to receipts and set aside variances — in-transit goods, supplier short-shipments — with a documented reason for each. Second, they match receipts to sales by SKU and period, using the order date rather than settlement date. Third, they derive closing stock from the formula and compare it against the warehouse balance and any physical count. Only when those tie out do they book the COGS journal entry and the inventory write-down for any stock carried above net realisable value. The final step is a variance review: opening stock plus purchases minus sales minus closing stock should equal the shrinkage booked. If it does not, the entry is wrong until it does, whatever the bookkeeper would prefer to post.
The test of a finished close is not that the balance sheet balances — it will either way. It is that the closing stock figure can be traced upward through receipts and purchases to a supplier invoice, and downward through sales to order IDs. If no one can walk that path, the close is not done.
How Caigeek runs the inventory COGS close for marketplace businesses
Caigeek takes in the same evidence a business already holds — purchase orders, supplier invoices, goods receipt notes from the ERP or WMS, marketplace order and settlement reports, and physical count results — and returns a single reconciled set of figures for purchases, receipts, sales and closing stock.
What to do first this week
Inventory closes fail because someone tries to derive closing stock from a single system. The fix is to lay out the four evidence sets — purchases, receipts, sales and stock counts — side by side before the period ends, and reconcile them in that order. If the gap between what the P&L says goods cost and what purchase payments say goods cost is a mystery, that gap is the first thing to trace.
Start by pulling this period's purchase orders, goods receipt notes and marketplace order reports into one place — then hand the tie-out to Caigeek.
Frequently asked questions
Why can't I just take COGS from the supplier invoices I paid this month?
Cash paid for inventory in a month does not equal the inventory sold in that month. Under IAS 2, a sold item's carrying amount is expensed in the period the related revenue is recognised. Supplier invoices reflect purchases, not sales; the four-way tie-out connects the two.
What does "lower of cost and net realisable value" mean for my closing stock?
It means slow-selling or discontinued items may need to be written down to what they can actually be sold for, rather than carried at what they cost. Per IAS 2, write-downs are recognised as an expense in the period they occur, so leaving stock above net realisable value overstates both the inventory asset and profit.
Why do the tax records need the same four inventory figures?
IRS Publication 538 explains that inventory is necessary to clearly show income when merchandise purchase or sale is an income-producing factor, with taxable income using beginning and ending inventory values. IRS Publication 583 lists gross receipts from inventory sales, purchases, beginning inventory and ending inventory as what inventory records should show. The four-way tie-out is the operating version of that recordkeeping.