Cost or Sales?

GarryRoss · Apr 8, 2019

A little out of season, but I run a small business selling letters from Santa Claus.

Letters are sent directly to the child in an envelope and this contains an A4 sheet of paper with the letter on and a sheet of free sticker.

Envelope, A4 paper and stickers are all purchased in bulk from a printer and feature colourful Christmas designs on each.

My question is, should these items be categorised as 'Cost of Sales' in my bookkeeping or are they just a general expense, such as 'Stationery'?

It feels to me like the envelope at least would be 'Stationery' as it is technically the means to send the letter, but what about the other items?

All the Best

Garry.

Mark T Jones · Apr 8, 2019

Personally I'd see them as a variable cost - or cost of sale since they are effectively a component of the product

stuartm1962 · Apr 8, 2019

Mark T Jones said:
Personally I'd see them as a variable cost - or cost of sale since they are effectively a component of the product

Definately a cost of sale.

GarryRoss · Apr 8, 2019

Thank you both for the reply.

I had a feeling that might be the case but extra guidance is always helpful.

In your opinion, would you include the envelopes as COS or just the letter/stickers?

Thanks again, very much appreciated.

Garry

Scalloway · Apr 8, 2019

If the the envelopes you buy are for sending the letters then they are a cost of sale.

GarryRoss · Apr 10, 2019

Thanks again,

This is the one aspect of the bookkeeping I've not been sure of, but it is slowly making sense.

LiveNetworks Ltd · Apr 10, 2019

Yup, cost of sale and at the end of the year you'll make an allowance for your closing stock of letters, stickers, envelopes to show the 'true' cost of the products you've sold and how much stock you've got available to sell in the next year.

If for instance every £1 letter costs you 50p and you've sold 1000 letters and spent £1000 on paper/stickers etc, if you class the costs as expenses, you've got £1000 sales, less £1000 expenses and no profit. If you do it correctly, you've got £1000 sales, £500 cost of sales, £500 stock to sell next year and £500 profit.

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Cost or Sales?

GarryRoss

Mark T Jones

stuartm1962

GarryRoss

Scalloway

GarryRoss

LiveNetworks Ltd

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