Stock

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hello,

First week back this week, so been doing alot of revision over the weekend.
I began looking at ETB, the point where I got confused was on stock.
I went back a step to familiarise myself with the chapter, but this didn't work.
I don't understand what opening and closing stock is and why opening stock is a liability.
Surely if it is already paid for it would be an asset?
Also, cost of stock does that mean the purchase of the raw materials and the transport?

Please help, a behind intermediate student!!
Thanks, Louise

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Stock

    Hi, without looking at my books ! If you are already in business, you will do a stock take at year end, then at the beginning of the new year this will be your opening stock figure, add to this your purchases in the year, yes raw materials, and take off your year end stock take figure, (closing stock) this will give you cost of sales. Check on the transport or carriage inwards, i'm not 100% without looking myself. If you look at your P&L and Balance sheet you will see the stock is an asset in the Balance sheet.
    Hope this helps
    rosie
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Stock

    Hi Rosie,

    So if I add my opening stock to purchases throughout the year, then I subtract the closing stock at the end of the year that leaves me with the stock that I managed to sell in that period.

    Is that right, Im having trouble understanding what needs to be done.

    Please help.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Stock

    You got it.
    Simply put, Cost of Sales= Opening Stock+Purchases-Closoing stock. So opening stock is taken to the p&L account as part of arriving at the Cost of sales figure. Then stock that is not sold at the endof the year will be taken to the Balance sheet as part of the current asset item on the balance sheet. There won't be any opening stock for new businesses otherwise, the cycle continues.
    Hope this helps
    Thanx
    Tom
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Stock

    Yes, for example, if you had opening stock of £5000, purchases of £5000, less closing stock of £5000, you are left with £5000 worth of stock.

    Then in your P&L, you have your sales figure, less your cost of sales (as above) which give you your Gross profit.

    There may be adjusments for returns inwards and outwards to be made to your cost of sales figure and sales figure.

    Rosie
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Stock

    Thanks for explaining that, I see what the point is now.
    I feel a lot more confident on the whole stock issue!!

    Many thanks, Louise

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Stock

    So just to clarify in double entry terms heres how it goes.

    At the end of the year you will have in the accounts a purchase account and an account with the opening stock from the beginning of the year (a current asset).

    1. First you transfer the purchase and closing stock to a cost of sales account
    Cr. Stock.
    Dr. Cost of Sales
    Cr. Purchases
    Dr. Cost of Sales.

    2. Next you do a year end stock take and the double entry is as follows:
    Dr. Stock
    Cr. Cost of Sales

    And there you go! You have the cost of sales for this year, a closing stock balance for the balance sheet for this year, and the closing stock balance is thus carried forward to start of next year.

    Adrian

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