A year-end inventory count for a multichannel seller is three different procedures tied to one cutoff. In your own warehouse, you count units physically. At a 3PL, you obtain a stock statement dated to the same moment and test it. At Amazon, you cannot count at all, so you use the Inventory Ledger's December 31 ending balance and account separately for units in transit. Reconcile all three to your books at the same date, explain every difference as either a timing item or a real variance, and post only the real variances.
The count supports one number on the balance sheet: inventory at December 31, in units and at cost. The IRS states the requirement plainly in Publication 538: you must take a physical inventory at reasonable intervals, and the book amount must be adjusted to agree with the actual inventory. Your CPA will also want to see that the units exist, that you own them, and that each one is counted once.
The last point is where multichannel sellers go wrong. A unit can sit in three states at year-end: on a shelf in your building, in a 3PL's racking, or in an Amazon fulfillment center. It can also be in a truck between any two of them. A count that looks at shelves only will miss the truck, and a count that adds up three separate systems without a common cutoff will catch some units twice.
Pick the moment: 11:59 p.m. on December 31 in your books' time zone. Then make every source answer as of that moment.
Count blind: counters get a location list without book quantities, so they write what they see. Count each location twice, by different people, and recount anything where the two disagree. Separate damaged and returned stock from sellable stock as you go, because they will be valued differently. If you already run cycle counts through the year, the year-end count can lean on them for slow-moving SKUs and focus on the high-value and high-velocity ones. The cycle count guide explains how to set that up.
A 3PL's stock statement is a report from someone else's system, so treat it the way an auditor would. Compare it to your books by SKU. Where they differ, look at the receipts and shipments around cutoff before assuming a loss; most 3PL differences at year-end are timing. Then test a sample: pick a handful of SKUs, ideally your highest-value ones, and ask the 3PL to count them physically on a stated date, or send someone to watch. A 3PL that cannot produce a dated report by SKU is telling you something about its controls.
Amazon's Inventory Ledger report replaced six older inventory reports in early 2023, per Amazon's Seller Forums announcement, and shows starting balance, receipts, customer shipments, customer returns, adjustments, removals, and ending balance. Amazon's report documentation lists the summary view's fields, including ending warehouse balance and in transit between warehouses, with events such as found, lost, damaged, and disposed. Run the summary view aggregated by month for December.
Three adjustments turn that report into a year-end number:
The full FBA rollforward method is in how to reconcile Amazon FBA inventory to your books.
Illustrative numbers. Take a seller with one SKU stocked in all three places. FIFO cost of the current layer is $8.40 per unit. At December 31 the perpetual records show:
The count results:
Total confirmed units: 1,180 plus 1,940 plus 1,845, or 4,965. Total books: 5,010. Net difference: negative 45, which matches negative 70 plus 40 minus 15.
Now classify. The 40 at the 3PL is timing, corrected by posting the return in the right period. The real variance is 70 plus 15, or 85 units. At $8.40, that is an inventory adjustment of $714. Before posting the FBA portion, check whether Amazon reimbursed or will reimburse the 15 lost units; a reimbursement is income that offsets the loss, and it may arrive in January.
Ending inventory for the SKU: 4,965 units at $8.40, or $41,706.
Post timing corrections to the period they belong to. Post real variances as an inventory adjustment, typically to a shrinkage or inventory adjustment account within COGS, so they are visible rather than buried. Ask your CPA which account they want used and whether any large variance needs a written explanation.
Do not let the count turn into a write-down discussion by accident. A count tells you how many units exist. Whether those units are still worth their cost is a separate test, done after the count. Damaged and unfulfillable units found during the count feed straight into it.
The count goes faster when the perpetual records already track location. ConnectBooks inventory tracks stock by warehouse, records transfers as in-transit until the receiving location confirms them, and values units on FIFO with landed cost allocated. Inventory reports run by warehouse, value, and aging, so the "books" column in the example above is a report rather than a spreadsheet. Tracking is by warehouse, not by bin or zone, so the shelf-level count sheet for your own building still comes from your warehouse system or a printed location list.
What the software cannot do is count. Someone still has to stand in the aisle, someone at the 3PL still has to produce a dated report, and someone still has to decide whether a 70-unit shortfall is theft, mis-picks, or a receiving error. The records narrow the search. The count closes it.
Running an e-commerce business comes with plenty of challenges, but ConnectBooks is here to make your life easier. With real-time insights, seamless integrations, and detailed tracking of your profitability and inventory, you can stay ahead of the game. Whether you’re selling on Amazon, Shopify, Walmart, TikTok or eBay, ConnectBooks helps you manage your finances with 100% accuracy and confidence, so you can focus on growing your business.
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