Hello
I have recently opened a small candle business and am wondering how to correctly account for the wax and candles I produced from the wax. I bought 200kg of wax from one supplier, let’s assume I paid £1000 for it. So far I have used 20kg to produce candles. My question would be twofold:
The Wax: Is it correct that I would account the 20kg I have already used as purchase and the remaining 180kg as asset? And if so, how would I transfer the remaining 180kg to my assets in quick file and which account would I use?
The Candles: Should I also count the candles as asset I have produced but not yet sold, totalling their retail prices to determine the value of this asset?
Apologies for a probably very obvious question. Thanks for your help!
Anything you buy throughout the year should be classified as purchases. At year-end (or more often if you wish) you so a stocktake and value the stock in hand at the lower of cost and net realisable value. That includes materials, work in progress and finished goods. You can recognise each category separately, or you can just include it all as total stock.
You then raise a journal to debit stock in the balance sheet and credit closing stock in the P&L with the stocktake value. The following year, you do the same but in addition to the above journal, you would also do another to move the opening stock (i.e. previous year’s stocktake value), so this time debit opening stock in the P&L and credit stock in the balance sheet.
Thus the P&L reflects the cost of the goods you have sold in the year, i.e. movement in stock, rather than the cost of your purchases.
Hi @cbstephensaca,
Thanks so much for your quick response.
I have done as you said and came across another problem. When I raise a journal and debit stock (in my case “raw materials”) in the balance sheet and credit closing stock in the P&L, credit and debit appear to be the wrong way around - debit in red and credit in green. Wouldn’t this mean I actually decrease my raw materials/ assets and increase my closing stock/ purchases? (cf. Screenshot)
Sorry for surely making quite a basic mistake, I probably don’t have to say that I’m new to accounting. Thanks so much for further clarification!
No worries I find the whole red/green thing in QF quite confusing so ignore the colours!
Essentially, debits in the balance sheet are assets and in the P&L are expenses. Credits on the other hand, are liabilities in the balance sheet and income in the P&L.
So your closing stock is an asset and therefore should be a debit in the balance sheet. You want to reduce your purchases cost by this amount so the other side of the entry is a credit to P&L to reduce your costs.
I find the whole red/green thing in QF quite confusing so ignore the colours!