OS an expense???????

MissJLouise

I have been working through the unit 5 E learning and am now up to the year end adjustments - closing stock. It explained that opening stock is put on the debit side of the profit and loss account. The explantion is gives is that "Once Opening Stock has been sold it is charged to Profit and Loss account as an expense.

Can anyone explain why it becomes an expense?

jewels.p

I've had a quick look on the E Learning but cant see where it says that. What number does it say that in cause Closing Stock is only included in the P&L to calculate C.O.S not as an expense?

jewels.p

jewels.p wrote: »

I've had a quick look on the E Learning but cant see where it says that. What number does it say that in cause Closing Stock is only included in the P&L to calculate C.O.S not as an expense?

Sorry meant Opening Stock

MissJLouise

jewels.p wrote: »

Sorry meant Opening Stock

Adjustments - closing stock

and its the 6th slide in (extending the ETB)

Next to the Opening stock figure (£5000) is a green arrow which when clicked explains the above

.....very confusing

PGM

MissJLouise wrote: »

I have been working through the unit 5 E learning and am now up to the year end adjustments - closing stock. It explained that opening stock is put on the debit side of the profit and loss account. The explantion is gives is that "Once Opening Stock has been sold it is charged to Profit and Loss account as an expense.

Can anyone explain why it becomes an expense?

Because that stock cost £5000, it was bought in the previous year, but not sold in that year!

Its only included in costs (expenses) in the year in which its sold.

So that costs and income are matched to the same year.

jewels.p

MissJLouise wrote: »

Adjustments - closing stock

and its the 6th slide in (extending the ETB)

Next to the Opening stock figure (£5000) is a green arrow which when clicked explains the above

.....very confusing

Yeah see that now. That is confusing cause I wouldave taken it to mean that it was an overhead when it says it is posted as an expense. Opening Stock is used to calculate COS as it is the Closing Stock from previous year and thats all there is to it lets ignore that one and hope it goes away!:laugh:

burg

As explained, costs need to be accrued in the year in which they occur.

At the start of the year any closing stock from last year becomes the opening stock fot the new year.

This is effectively recognised as an expense in the new year as though you had bought it in that year. If that stock all remained unsold at the end of the year it would get cancelled out by the closing stock and there would not be an expense recorded.