I am doing books for a small home based floristry business. The owner purchases (apart from flowers!) other sundry items suchs as beads / floral sprays, holders, etc which are incorporated into bouquets, etc. for selling. She has provided opening stock and year end closing stock totals of these items, but I am confused as to whether these should be put down as stock asset (BS) or stock item (P&L)
She also purchases various tools such as glue guns (£50) which are kept for 1/2 years before being replaced. Should these just go down as office expenses?
The unsold items - flowers,beads,sprays etc form part of closing stock in the balance sheet. The logic being that the items are carried forward for sale in the next accounting year. The items will be already included in the p&l under purchases, assuming they were bought in the year. So you have to remove them from the p&l and into the balance sheet by
dr closing stock cr purchases.
As for the glue guns and other small tools I would include them in the p&l during the year in which they are bought. Strictly speaking if they contribute to profits for more than one year then they are an asset. But because their value is so low as not to really impact on the profit, I wouldn't bother capitalising them.
hth.
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
Remember on an extended trial balance (not sure if you use one) but you will have 2 closing stock items (same amounts obviously) one for the BS and other for P&L (cost of sales calculation)
This shows on P&L correctly for the Cost of Sales (Purchases + O/S - C/S)
But the Balance Sheet for year end does not appear to be correct for Stock (1001) as the £728 is still in there. Should there not be a journal entry such as DR Stock 1001, and would it have a CR journal entry against Suspense 9999? But would this not then appear on the P&L. I am getting well confused.
The last bit doesn't quite make sense. The closing balance on 31/12/10 would have been to
Dr 1001 B/s £728 Cr 5201 P&L £728
So you're first journal above on 1/1/11 would have cleared 1001 with the credit you need. At this point the Closing stock in the balance sheet would be nil.
I can't tell if it's a typo in your second journal or something is wrong with the way the accounts are set up but 1001 is a B/Sht account and 5201 a P&L a/c, not the other way around as you've stated.
You should end up with 3 entries in 1001
Dr 31.12.10 - £728
Cr 1.1.11 - £728
Dr 31.12.11 - £624
-- Edited by ADAS on Monday 30th of January 2012 08:03:55 AM
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
In relation to Balance Sheet problem, having checked back the TB with Opening Balances I was given (different nominal acc codes than I use), I think I then entered the OB for stock into the wrong acc. I think I am right in saying it should be in the Stock 1001 and not O/S 5200?
The journal entry for 1/1/11 would then clear the Stock 1001 of the £728 on the B/S.
