Goods in transit at the year end

Q: How does this look in the books?

Illustration only. A UK wholesaler with a 31 December year end buys £40,000 of goods from an overseas supplier on terms that make the wholesaler responsible from loading at the port of shipment. The goods are loaded on 20 December and arrive on 12 January. The supplier's invoice is dated 20 December. The wholesaler controlled the goods from 20 December, so at 31 December it records the purchase and the creditor, and adds £40,000 to closing stock as goods in transit. FRS 102 paragraph 13.5 includes in cost all costs of bringing stock to its present location and condition, and paragraph 13.6 lists transport, handling and import duties within the costs of purchase. Freight the wholesaler has incurred so far is added; duty and charges that will only arise on arrival in January are not, because the goods have not yet reached that point. The supplier, if it prepares UK accounts, records the sale in December and excludes the goods from its stock. If the terms had instead made the supplier responsible until delivery at the wholesaler's warehouse, the wholesaler would record nothing until January and the goods would remain in the supplier's stock. The mechanics of the closing entry are on the year end stock journal page.

Q: What mistakes come up most often?

Counting only what is in the building. Goods the business already controls but has not received are left out of stock. Recording the sale but keeping the stock. A seller invoices in December but leaves goods in transit in its stock, double counting them. Assuming whoever pays freight owns the goods. Who pays carriage and who controls the goods are separate questions. Applying business rules to consumer sales. Consumer goods are normally at the trader's risk until the customer has them. Confusing consignment with transit. Goods sent to a dealer on sale or return are a different issue; see consignment stock. Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Goods that are on a lorry, ship or plane at the year end belong in the stock of whichever party controls them at that moment, and the contract’s delivery terms are the main evidence of when control passed. If control passed when the goods left the seller, the buyer includes them in stock and records the purchase, even though nothing has arrived. If control passes only on arrival, they are still the seller’s stock and the seller has no sale yet.

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Why are goods in transit a year end problem?

A stock count records what is physically in the warehouse. Goods already shipped by a seller are not in its warehouse, and goods on their way to a buyer are not in the buyer’s warehouse either, so a count on its own will leave them out of both. Unless someone deliberately asks who owned the goods in transit, they can vanish from the accounts or, if the seller’s sale and the buyer’s purchase are both recorded on different bases, be counted twice.

The amounts can be large for importers, exporters and distributors that ship in containers. Getting it wrong misstates both stock and profit, and the error reverses the following year. It is one part of the wider exercise of getting cut off at the year end right.

What test does FRS 102 apply?

Under FRS 102 an asset is a present economic resource controlled by the entity (paragraph 2.33), and control means the present ability to direct the use of the resource and obtain the benefits from it (paragraph 2.37). For the seller, the revised Section 23, which applies to accounting periods beginning on or after 1 January 2026, says a sale of goods is recognised when the customer obtains control. Paragraph 23.85 lists indicators of that point:

the seller has a present right to payment;
the customer has legal title;
the customer has physical possession;
the customer has the significant risks and rewards of ownership;
the customer has accepted the goods.

Paragraph 23.86 stresses that no single indicator decides the answer. For goods in transit, physical possession sits with the carrier, so the decision usually turns on legal title, risk and the right to payment. The buyer’s side mirrors the seller’s: if the seller has a sale, the buyer has stock.

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How do the delivery terms help?

The contract normally says where delivery takes place and who bears the risk on the way. International contracts usually do this with an Incoterms rule. HMRC’s list of delivery terms for customs declarations shows that some rules are tied to a named place of delivery or port of shipment at the seller’s end, such as EXW (ex works), FCA (free carrier) and FOB (free on board), while others name a place of destination, such as CPT, CIP, CFR, CIF, DAP, DPU and DDP. The Incoterms rules themselves are published by the International Chamber of Commerce, and the version and named place written into the contract are what count.

As a working approach:

Delivery at the seller’s end. Where the contract makes the buyer responsible from collection or loading, goods in transit at the year end are generally the buyer’s stock.
Delivery at destination. Where the seller delivers to the buyer’s premises or a named destination and bears the risk until then, goods in transit are generally still the seller’s stock.
Terms where the seller pays the freight. Paying for carriage or insurance to a destination does not by itself mean the seller still controls the goods. Read where the contract places delivery and risk, rather than who pays the haulier.

What does UK sale of goods law say when the contract is silent?

For business to business sales, the Sale of Goods Act 1979 fills the gaps. Section 17 says property in specific or ascertained goods passes when the parties intend, judged from the contract terms, their conduct and the circumstances. Where intention is unclear, section 18 rule 5(2) treats a seller who delivers goods to a carrier for transmission to the buyer, without reserving the right of disposal, as having unconditionally appropriated them, so property passes on handover to the carrier. Section 32(1) similarly treats delivery to a carrier as prima facie delivery to the buyer. Section 20 then says that, unless otherwise agreed, risk passes with property.

Two exceptions are worth knowing. Under section 19, a seller can reserve the right of disposal until conditions such as payment are met, and where a bill of lading makes goods deliverable to the seller’s order, the seller is prima facie taken to have done so. Retention of title clauses work in a similar way and are covered in retention of title claims. Note that keeping legal title only as security does not necessarily stop control passing: paragraph 23.86(a) of FRS 102 recognises that a customer can obtain control even though the seller retains title to protect itself against non payment.

Sales to consumers are different. Under section 29 of the Consumer Rights Act 2015, goods stay at the trader’s risk until they come into the physical possession of the consumer, unless the consumer commissions a carrier the trader did not offer. An online retailer’s parcels in the post at the year end are therefore usually still its own stock.

How does this look in the books?

Illustration only. A UK wholesaler with a 31 December year end buys £40,000 of goods from an overseas supplier on terms that make the wholesaler responsible from loading at the port of shipment. The goods are loaded on 20 December and arrive on 12 January. The supplier’s invoice is dated 20 December.

The wholesaler controlled the goods from 20 December, so at 31 December it records the purchase and the creditor, and adds £40,000 to closing stock as goods in transit.
FRS 102 paragraph 13.5 includes in cost all costs of bringing stock to its present location and condition, and paragraph 13.6 lists transport, handling and import duties within the costs of purchase. Freight the wholesaler has incurred so far is added; duty and charges that will only arise on arrival in January are not, because the goods have not yet reached that point.
The supplier, if it prepares UK accounts, records the sale in December and excludes the goods from its stock.

If the terms had instead made the supplier responsible until delivery at the wholesaler’s warehouse, the wholesaler would record nothing until January and the goods would remain in the supplier’s stock. The mechanics of the closing entry are on the year end stock journal page.

Does tax or VAT follow the same answer?

For corporation tax, section 46 of the Corporation Tax Act 2009 requires trading profits to be calculated in accordance with generally accepted accounting practice, so the accounting answer on stock and sales generally carries through. VAT has its own rules. VAT Notice 700 says the basic tax point for goods is usually the date they are sent to the customer or the customer takes them away, which may fall in a different period from the accounting sale. For imports, who acts as importer and pays import VAT and duty is a separate question covered in Incoterms and VAT responsibility.

What evidence should be kept?

The contract or purchase order showing the delivery terms and the named place.
Shipping documents such as bills of lading, air waybills and carrier receipts, with dates.
Supplier invoices and customer invoices for shipments around the year end.
A schedule of goods in transit at the year end, listing supplier or customer, terms, dispatch date, arrival date and value, agreed to the stock records.

Auditors test this as part of the count and cut off work described in stocktake attendance.

What mistakes come up most often?

Counting only what is in the building. Goods the business already controls but has not received are left out of stock.
Recording the sale but keeping the stock. A seller invoices in December but leaves goods in transit in its stock, double counting them.
Assuming whoever pays freight owns the goods. Who pays carriage and who controls the goods are separate questions.
Applying business rules to consumer sales. Consumer goods are normally at the trader’s risk until the customer has them.
Confusing consignment with transit. Goods sent to a dealer on sale or return are a different issue; see consignment stock.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.