Inventory Book and Application Process

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What is an Inventory Ledger?

The inventory ledger is a legally mandated accounting book in which a business systematically records all its assets, liabilities, and equity. This ledger is mandatory for taxpayers who are required to maintain their books on an accrual (balance sheet) basis. According to Article 64 of the Turkish Commercial Code (TCC) and Article 186 of the Tax Procedure Law (TPL), businesses must conduct an inventory at the end of the fiscal period and record this information in the inventory ledger. The inventory ledger serves as a mirror reflecting the company's financial status at the end of the year. It lists assets (stocks, cash, bank accounts, real estate, etc.) and liabilities (loans, checks, taxes, etc.). It also forms the foundation for the preparation of financial statements such as the balance sheet and income statement.

The Role and Importance of Inventory in Accounting

From an accounting perspective, inventory plays a vital role in determining the business’s financial status resulting from its operations. Inventory records: Ensure accurate tax calculation, Reveal the company’s profit or loss status, Support the accuracy and transparency of financial statements.

Benefits for Company Management: Facilitates stock management and resource planning. Helps identify unnecessary expenses, excess stock, and low turnover rates. Allows for more informed investment decisions, reducing financial risks.

Who is Required to Keep an Inventory Ledger?

The inventory ledger is one of the accounting books that details a business’s assets, liabilities, receivables, and capital at the beginning and end of a fiscal period. Under the provisions of the Turkish Commercial Code and Tax Procedure Law, certain individuals and legal entities are required to keep this ledger.

Entities Required to Keep an Inventory Ledger

Taxpayers keeping books on a balance sheet basis: All commercial enterprises that follow the balance sheet principle under the Tax Procedure Law must maintain an inventory ledger.

Capital companies: Legal entities such as joint-stock companies, limited liability companies, and partnerships must keep an inventory ledger regardless of their field of activity or turnover.

VAT taxpayers: All commercial businesses that sell goods or services and are registered for VAT must keep an inventory ledger.

Real persons earning commercial income: Sole proprietors subject to income tax on a real basis must keep an inventory ledger if they follow the balance sheet principle.

e-Ledger taxpayers: Companies that are required to keep digital books due to exceeding a certain turnover or being in specific sectors must also create and store the inventory ledger digitally.

Entities Not Required to Keep an Inventory Ledger

Self-employed professionals: Individuals engaged in self-employment activities (e.g., doctors, lawyers, dentists, architects, etc.) earn professional income rather than commercial income and are therefore not required to keep an inventory ledger. For these individuals, a Self-Employment Income Book is sufficient.

When and How is the Inventory Ledger Certified?

Ledger certification: The inventory ledger must be certified by a notary or the trade registry office before it is used.

For existing businesses: The ledger must be certified in December before the new fiscal year begins.

For newly established businesses: The ledger must be certified before the establishment date.

When a new ledger is required (e.g., when the current one is full): The new ledger must be certified before it is used.

Closing certification: Must be completed within 3 months following the end of the accounting period.

Failure to comply with certification requirements: Results in the ledger being deemed invalid, tax penalties (such as loss of tax or procedural fines), and it will not be accepted as valid documentation during official audits.

How is the Inventory Ledger Maintained?

Basic Rules:

• Must be written in Turkish.

• Entries must be in Turkish Lira.

• Entries must be made regularly, completely, and on time.

• Lines should not be skipped or left blank. Entries can be delayed by a maximum of 10 days, or 45 days if based on accounting vouchers.

Correction Rules:

• Incorrect entries cannot be erased or crossed out.

• Incorrect information must be struck through, left legible, and corrected alongside the original entry.

• All corrections must be made in accordance with accounting principles.

What is Recorded in the Inventory Ledger?

The inventory ledger must include both assets and liabilities in detail:

• Opening and closing trial balances

• Year-end balance sheet and income statement

• Stock and fixed asset lists

• Issued/received checks and promissory notes

• Bank accounts and cash on hand

• Short-term and long-term liabilities

• Receivables and collection plans

• Loan repayment schedules

• Income/expenses carried over to the following year

• This information presents the company’s actual financial position at year-end and forms the basis for tax declarations.

How Does the Inventory Process Work?

Physical Count: Stocks, fixed assets, and real estate are physically counted.

Valuation: The cost, depreciation, or market value of each asset is calculated.

Listing: All items are arranged in readable lists.

Ledger Entry: Information is entered into the inventory ledger.

Methods Used:

Physical Counting Method: Direct observation and counting.

Stock Card Method: Card/digital record for each product.

Periodic Inventory Method: Calculation based on year-end stock levels.

The Digital Transition: e-Inventory Ledger

The e-inventory ledger is the digital version of the traditional inventory ledger. It is recommended for e-Ledger taxpayers but is not directly classified as an official e-ledger.

Advantages: Eliminates the need for physical ledgers Records are secure and easy to store Speeds up auditing and reporting processes

Transition Steps: Registration with the Revenue Administration’s e-Ledger system Preparation of inventory data in digital format Creation and submission of the XBRL/e-report file

Conclusion

The inventory ledger stands out as an indispensable accounting tool that allows businesses to accurately prepare financial statements, fulfill tax obligations correctly, and make sound financial decisions. Whether kept in physical or digital form, the proper maintenance of this ledger in accordance with legal procedures simplifies internal audits and offers protection against potential financial penalties. Especially with the implementation of e-Ledger applications, transparency, speed, and reliability in accounting processes have improved, making inventory management more accessible. Therefore, inventory ledger practices must be carried out diligently both in terms of legal compliance and corporate governance.