I am helping my wife set up a retail business and I am getting confused over COS accounts.
COS accounts could include stock purchases, delivery charges, and perhaps could include direct staff and so on. These are expense accounts so would normally be debit entries.
However, I have also come across COS accounts - opening stock value and closing stock value - which would be a great help in reporting end-of-year/period COS. My confusion here is that stock value tends to be an account belonging to current assets rather than COS
My question - how would you set up COS accounts within a chart of accounts and process transactions through them?
Determine the cost value of stock at the beginning of the accounting year. This value will have been debited to a stock current asset type of account. The balance sheet taken at the end of last year will report this value.
Purchase stock through the reporting period (month, quarter, year) and debit it also to the stock account. Stock value is increased.
At the end of the reporting period, do a stock-take and determine the COST value of the stock. The difference between the stock value (starting stock, plus purchases) at the period end and the stock-take value is cost of sales.
The transaction will debit COS account with COS value and credit (reduce) the stock asset account
