I have recently purchased machine embroidery design software (one-off expense around £140) and then frequently purchase individual machine embroidery designs (from £1-£10) that I either repeatedly stitch out as they are or modify/incorporate them into bigger designs via the software - I effectively ‘own’ both the software and the designs as they cannot be ‘taken off me’ (a phrase from another answer). How do I categorise the purchase of these? If I create a ‘Software’ option, does this come under Office Equipment, IT Consumables or some other expense? Thanks
The initial cost of the software could be treat as an asset (Equipment) but the value is reasonably small enough to be classed as an expense item in the nominal codes as 'software ’
The designs I would class as purchases and then keep a note of the number left at year end and count as stock. You will need to come up with a value for these designs so best to keep a list with a realistic value of each one.
If you find that one of the pre-set nominals doesn’t fit quite right then you can always set up your own custom nominal: Adding a new nominal account
Hope this helps
Thanks very much for your advice. One further question, if I need to classify the individual software designs as stock at the end of the year, why would I not classify them as Stock in the first instance instead of purchases? Each design is purchased once but can then be used over and over again for repeated orders so it’s not a case how how many I have left at the end of the year as I will have all of them forever - I’m making finished products using designs I purchased a couple of years ago (hope I’m making myself clear!). Thanks.
Stock is not only for the purpose of resell but also to account for the cost of production of goods.
If your using these designs to make other items then I’d imagine it fits in the definition.
You’d also likely buy more designs at some point in the future so the entries would look like.
Opening stock plus purchases less closing stock.
Opening stock would be what you had at the start of the accounting period, purchases would be what you buy during the period. And closing stock would be what you have at the end of the period.
Even if you don’t sell any, youll still have opening stock purchases and closing stock entries to make.
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