How should a Hong Kong business account for inventory and stocktake?
Count stock physically at least at year end, value it using a consistent cost method (such as first-in-first-out or weighted average), and record the movements in the ledger. The IRD expects goods traders to keep buying and selling records plus year-end stock statements and the stocktake records behind them.
What the IRD expects. For businesses dealing in goods, section 51C records should include details of goods bought and sold (items, suppliers, customers, quantities and values), related invoices, a statement of trading stock held at the end of the accounting period, and the stocktake records that support it.
Practical steps
- Record purchases at cost, including freight and import costs that bring the goods to their present location.
- Track movements with a stock list or inventory module: receipts, sales, returns, write-offs.
- Count stock at year end (and ideally periodically) using numbered count sheets signed by the counters. Your auditor will usually want to attend or review the count.
- Value stock using a consistent cost formula, such as first-in-first-out or weighted average. HKAS 2 carries stock at the lower of cost and net realisable value (para 9), and HKFRS for Private Entities at the lower of cost and estimated selling price less costs to complete and sell (s.13.4), so damaged or slow items may need to be written down. Both allow first-in-first-out or weighted average; HKFRS for Private Entities does not permit last-in-first-out (s.13.18).
- Reconcile the stock records to the ledger and investigate differences.
Keep count sheets and valuation workings for the seven-year retention period; they are the evidence behind the largest balance in many trading companies.
Legal basis
- Inland Revenue Ordinance (Cap. 112), s.51C
- Companies Ordinance (Cap. 622), s.373
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- Is a Hong Kong company legally required to keep accounting records?Yes. Section 373 of the Companies Ordinance (Cap. 622) requires every company to keep accounting records that explain its transactions and show its financial position and performance at any time. Directors who fail to take all reasonable steps risk a fine of HK$300,000, and up to 12 months' jail if the failure is wilful.
- How long must a Hong Kong company keep its accounting records?Seven years. Under section 377 of the Companies Ordinance, a company must keep its accounting records for 7 years after the end of the financial year to which the last entry relates. The Inland Revenue Department separately requires business records to be kept at least 7 years after the transactions they relate to.
- What does section 51C of the Inland Revenue Ordinance require from my business?Anyone carrying on a trade, profession or business in Hong Kong must keep enough records, in English or Chinese, to work out assessable profits, and keep them for at least 7 years. Failing to do so without reasonable excuse can lead to a fine of up to HK$100,000.
- Which documents should a Hong Kong business keep for its books?Keep every document that supports an entry in your books: sales and purchase invoices, receipts, bank statements, contracts, payroll and MPF records, asset purchase papers, loan agreements, and stocktake sheets. The test is whether someone else could trace any figure back to its source.
- Can a Hong Kong company keep its accounting records digitally or scan paper originals?Yes. The Companies Ordinance allows records in hard copy or electronic form, provided they stay available for reference and can be reproduced on paper. The IRD also accepts electronic books and scanned source documents if integrity, legibility and origin details are preserved, and no prior approval is needed.