Bookkeeping Question left over stock
Hi
i wonder if somebody can provide some advice
at the end of the year accounts
what happens if you had lets say
£2,000 worth of stock left over
do you add it on to your profit figure
or just leave it off and wait to it converts to sales
thanks
66 replies
Seller_77IcbQKVGdZo0
It should be treated as an Asset so it doesn’t affect your profit figure at all. You can’t add unsold stock to your profit figure and indeed you wouldn’t want to as it would only increase the amount of tax you need to pay. It should show on your balance sheet as an Asset.
Any stock that has been sold in the year should be shown on your profit and loss statement as Cost of Sales.
Seller_Wqg5EgqxuOwDD
You start with your opening stock, you then add the years purchases to this figure and then deduct your closing stock. This is your cost of sales.
Seller_qZO3ZCjoBXEeL
As @Isabella has said,
For our books your opening stock is a cost of sales for the current year. Your closing stock is then a credit against cost of sales. (You could simplify this in your head as buying stock off yourself from the previous year and then selling it to yourself next year)
This then gives you a gross profit against turnover - cost of sales. You then deduct overhead expenditure and other fixed costs to arrive at your Net Profit.
What sits where is sometimes a choice but the important thing is to keep consistent so that you can compare year-to-year accurately.
Seller_m9cozrMuSqF6W
It should be included in both “Profit and Loss account” and “Balance Sheet”
Opening stock + purchases - closing stock give you gross profit
Gross profit - operating expenses give you net profit
Closing stock is under current asset in the Balance Sheet.
Seller_D52kINh75QL8v
What is stale stock “worth”? I guess we all have stale stock that will never sell. But should it count as an asset to the value you paid for it.
I write off stock that hasn’t sold for a year and give it to charity.
Seller_LKjg1QRrO36Yq
Has anyone mentioned cash basis accounting?
Seller_rGtEcZnu0JTRD
Yes, you do need to include the stock as an asset at the end of the year, based on the price paid for the stock, and not the retail value. You are also allowed to make a deduction from the value paid, if you have slow moving stock that you may need to dispose of, or sell for a loss, then you can change the value of the stock to reflect this.
Seller_z6B2L9xab6HlP
It depends whether you run your books on a cash basis or an accruals basis.
If you use a cash basis you literally just record what you’ve bought and what you’ve sold, so you don’t keep track of assets and liabilities (including accounts payable and receivable). This is usually only used for small businesses.
If you use an accruals basis, when you buy stock it becomes an asset, when you sell stock you reduce the total assets amount by what the item cost you, then add the sale price to your income. This is what large businesses do.
Medium sized-sellers usually use an accruals basis for accounting but actually run their books similar to a cash basis but maybe with accounts payable and receivable on top. To correct for not tracking each stock movement they take an inventory at the end of the year to give them the end of year stock asset value.
Seller_mG4WW07aCfFSt
You will remove this from your cost of sales, and hold it as stock on your balance sheet.
Entry will be
Dr Stocks by £2000
Cr Cost of sales by £2000
I am assuming these are net of VAT figures.
Hope this helps.
Seller_m9cozrMuSqF6W
A Sole trader can use cash accounting when sales are less than £300,000, have to use traditional accounting when selling £300,000 or more.
For limited companies, the valuation of stock has to choose one of 4 methods: first in first out, last in last out, average cost, and gross profit.
FIFO (first in first out) :
eg beginning stock 10 unit @ £5
purchase (3.3.2021) 100 units @£7
purchase (9.6.2021) 200 units @ £6.5
Sales 250 units: cost of sales 10 units @5 =50
100 units @7 =700
140 units @6.5 =910
=> cost of sales = 1660
closing stock =10+100+200-250=60 units should be valued at £6.5 each
