I was thinking of the cost of sales for a cleaner (say a sole trader to keep it simple) and he buys a load of cleaning fluids that he then uses on the job. The cost of sales would include all costs incurred in doing the job, say transport costs and these products. At the end of the period he has some cleaning products left.
How would this be recorded? It can't surely be put as closing stock. What would the trading account look like for this situation.
hope thatt his response is aimed at the right level.
Income statement :
Cost of sales would be Opening stock + purchases - closing stock.
Statement of Financial Position :
Closing stock is a current asset
See whats happened there, the closing stock has been removed from the calculation of the profit figure (bottom half of the SOFP) so that profit is not understated and put into current assets (top part of the SOFP) to balance the increased profit.
The main thing to bear in mind is that the balance sheet (SOFP) always has to.
HTH,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
So the value of what's left of the cleaning fluids counts as closing stock? Say it''s the first period so there is no opening stock and half the fluid is left and it cost £10, therefore closing stock is £5?
The logic is to shift the cost of the unused materials into the period in which they are used - or, to put it another way, to show the cost of the materials that have actually been used in any given period.
So, using your example, £10 of cleaning materials were purchased, and in the first period only £5 worth of that was used, leaving £5 carried forward as stock.
Therefore, you only want to show the £5 that was used in the cost of sales.
In the next period, another £10 might be spent, to add to the existing (opening) stock of £5 - but only £8 might actually be used in that period, leaving £7 unused, for the next period. Therefore, you want the cost of sales to be £8; you have £5 brought forward, plus £10 purchases, minus the closing stock figure of £7 - which all nets off at £8.
And so on, working forwards.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
