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title: "Physical Inventory - Difference Report"
canonical: "https://wiki.soft1.eu/space/SS5EN/447348737/Physical%20Inventory%20-%20Difference%20Report"
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#### ↪️ **How to deal with physical inventory differences**
A possible inventory shortage reduces the final stock, leading to an increase in the cost of sold goods and a reduction in income tax. On the other hand, an inventory surplus increases the final stock, hence decreasing the cost of sold goods and increasing income tax. In such cases, the Tax Audit will likely impose penalties due to the following reasons:
- Shortages may indicate that sales have been made without documents or with inaccurate invoices.
Thus, shortages, that are considered normal and non-essential during the Tax Audit, are normally deducted from taxable income.
However, if they are not justified, there are two possible scenarios:
1. If there is no clear evidence of revenue hiding, the shortages are treated as sold stock and their value is added to taxable income.
2. If there is evidence of revenue hiding, the official reports are considered to be inaccurate and an out-of-accounting determination of taxable profits is made, using any available information or indirect audit methods.
- Surpluses may indicate that fake invoices have been issued or some purchases have not been recorded.
To avoid these penalties, the company must take all necessary measures to ensure that there are no inventory discrepancies. This means that the physical inventory must match the Stock Ledger and comply with the Accounting standards.
Sales, [self-delivery notes](https://wiki.soft1.eu/space/SS5EN/189268024/Self-delivery+note), and any exports from the stock company must be accompanied by the documents that should update the Stock Ledger. If any differences cannot be justified, they might be considered as revenue hiding by the company.