Cost of sales help

justyna24

I have one issue with cost of sales, was wondering if someone could help clear things up.
In a recent test the business was VAT registered. Purchases was inclusive of VAT and inventory decreased by X amount.

eg. if purchases was £120,000 inclusive of VAT and inventory decreased by 2,000.

To get purchases net of VAT I would assume you take off the VAT from 120,000.

To get cost of sales would you use 120,000 before taking off the VAT then add 2,000 from the decrease in inventory to get the cost of sales?

or would you use 100,000 after taking of VAT then add 2,000 from decrease n inventory to get cost of sales?

Pian32

For Cost of Sales the Vat shouldn't be included so I would remove the VAT leaving you with £100,000 for purchases and then add the decrease in inventory which is already VAT free.

justyna24

Thanks for reply