I'm doing some bookkeeping for a friend who's a hairdresser but I would like to know how I should account for stock?
When she purchases stock I would Dr Stock (Asset) Cr Trade Creditors. The issue comes where some of the stock is (1) Sold at profit (2) consumed by the business.
If it's sold (1)
Dr Cash (Bank) Cr Stock (The profit will work itself out somewhere I'm guessing)
If it's consumed (2)
Stocktaking adjustment I'm guessing.
Cr Stock......Other side??? Dr.......... (I suspect it's cost of sales but I'm hoping it isn't as don't really understand this will need to brush up my knowledge)
If it is cost of sales can someone give me an overview?
Thanks and as always very grateful for any advice.
Err, what software are you using? In any case this is fairly basic, purchases debit purchases, debit vat (if reg) credit creditors. Stock take debit stock with value, credit purchases.
If I was doing this book keeping, unless you're going to be there doing it every week, I'd put all her stock purchases straight to Cost of Sales, then do the adjustment from COS to stock as and when she does a stock take - i.e. at the end of each month perhaps - otherwise it will be very difficult to keep up with.
Carol
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Carol Saunders Lady of Ledger Book Keeping Telford, Shropshire
Thanks both. Do I not need to differentiate the 2 types of stock at all i.e. Stock for use in the business and stock for resale for profit. I am using Solar account to bookkeep. I have been provided with a one off end of year figure to book keep it's not done monthly.
If I debit Stock and cr trade creditors to record the purchase and Cr Stock Dr cash to book keep and direct sales.....then presumably this forms part of cos does it? I'm a little rusty but the term cost of sales is just a calculation....i.e. not a specific account as such?
Where I haven't got cash sales I can assume the rest of the stock has been used in the business or remains for business use.
Can you confirm this is the case also.......can you help me out with the debit entry for the stock adjustment.....Cr Stock to reduce the asset but where does the Dr go????
As Chris and Carol say make the debit posting go to purchases, this will form your cost of sales, i.e. it is a direct cost. It really doesn't matter if the products are used during the hairdressing or sold on afterwards, though it might be useful to have a separate sales nominal code for the different sales made. If you are preparing management accounts then get a stock take of the purchases valued at cost and you can debit this to stock and credit purchases (thus showing as an asset in the balance sheet and reducing the purchase charge to show a higher GP.
My answer might have come a across as sarcastic, mainly due to supping a few beers yesterday. But yeah, Id just count the stock at the end of the month you are doing accounts up to, and adjust as above.
It's late so I just want to make sure I'm doing this right.
I've been recording stock purchased as follows Dr Stock / Cr Cash or Creditors
As at the year end the balance before the adjustment is 2,610.80 (This includes an element of stock that would have been sold for profit but I'll ignore that)
My closing stock figure needs to be £1,357.30
So my adjustment should be (2,610.80 - 1,357.30) £1,253,50
So have I understood correctly.......do I just Cr Stock for £1,253.50 and Dr Purchases £1,253.50
Does PURCHASES = COS....I notice I do have a COS (expense) account in Solar Accounts?
