Cost of sales

[saddlers]

When looking at transactions in VT cash book, an entry in cost of sales-purchases has a direct affect on the P&L account, therefore could someone not purchase stock/inventory/materials at the end of the year to reduce profits?

Or am I missing something really obvious

 

[StevensOnln1]

You deduct the value of your unsold stock at the end of the year and add it on to your stock purchases in the following year. Buying extra stock before the year end does not reduce your profits - a lot of businesses let their stock levels run down low before the year end to avoid carrying over too much stock into the next year.

 

[saddlers]

So if I understand this correctly the cost of sales is actually the costs associated with the products sold to date, not all stock purchases to date.

Therefore how would you allocate stock that has been purchased but not yet sold in VT cash book?

My business is selling coins, so there is inevitably a large standing stock, that I want to grow with time as I purchase the coins, but how do I record that in VT cash book? I was putting it into cost of sales - purchases

 

[Bob]

Are you keeping any sort of stock record. If so you transfer out the coins that you hold in stock at the end of the year from purchase on the P & L to stock on the balance sheet and transfer it back on the first day of the next year. You value at the lower of cost and net realisable value so if you buy a coin for £50 but realise that it is only worth £5, you take it out at £5 and get relief for the £45 you overpaid. Hope that makes sense

 

[saddlers]

Perfect sense thanks for that, that was one of the main things that was confusing me. I do keep a detailed record of all stock purchases so I know exactly what stock I have at any one time, prevents me buying too many of the same item.

So I assume that adjustment is made at year end? The more I look at this the more I realise that whilst I am confident that my record keeping will be good...I might just be needing a bit of some support from someone in the know

 

[Bob]

didn't you say that your daughter was going to do AAT? She can help you

 

[saddlers]

Yes, she is doing it at the moment, she works for the Local Authority though, so I fear that whilst she may be studying the subject the approach will be vastly different ...then again what do I know it may be identical

She has already given me some advice and support, but I hesitate to keep harassing her, it is much easier to harass strangers on a forum I know she would give me the time, but I do worry about asking too much of her, and figure that if I can get a grip on the basics, then hopefully she can help me focus on the real issues.

Thanks again for your input....you are becoming less of a stranger