I have received a load of receipts for a hairdresser client (sole trader) for which there are purchases from the start of business on 01/02/2010 upto December 2010. I am doing the bookkeeping for the period of 01/02/2010 to 05/04/2010 and then will continue the financial year from 06/04-05/04.
The problem I have is with the COGS figure for those initial few months. The client has never completed a stock take therefore doesn't know what the closing stock value was on 05/04/2010. I will be getting her to do a stock take asap and to do this on a quarterly basis in future periods, but I am a little stumped as to what to do for the first accounting period. Is there a ratio/calculation that can be used to assess this or some method that is accepted for this 'incomplete record'?
Thanks for any help you can offer. The paperwork was all over the place (personal account/business account transactions, random spending, poor banking records, etc) but I have cleaned this up quite a bit and have proposals to improve future record keeping, but I need to get over this obstacle first.
Merlion, Thanks for your response which will prove useful. I am fairly new to the practical world of bookkeeping but I'm finding it interesting and help from members like yourself is much appreciated. Looking at those GP %, I have managed to make some estimations, which will suffice until an accurate stock take is done.
I will be getting her to do a stock take asap and to do this on a quarterly basis in future periods,
Is that normal for a business that size? I thought there would just be a stock take at the end of each year.
Depends on how accurate you want your figures to be. If your doing management figures then yes its useful to do. I cant imagine we are talking Thousands of £'s so it shouldn't be a big job. Plus it allows you to keep track of stock to ensure nothing is going missing or unaccounted for.
But yes in most cases a year end stock take would do for annual accounting purposes.
I will be getting her to do a stock take asap and to do this on a quarterly basis in future periods,
Is that normal for a business that size? I thought there would just be a stock take at the end of each year.
She's wanting quarterly accounts and the task shouldn't be too time consuming. I want to keep the books as accurate as possible and don't know how else I can do it without a stock take to obtain the closing stock value.
Its good practice I suppose to do it. At least it will give a good indication with regards to tax planning and stuff if they want to do that.
I would however suggest some form of spot checking to ensure what they are doing is correct and that correct number of items and the correct values are used.
