What category do I put purchases of stock under?

What category do I put purchases of stock that I am going to sell under?

I would assume it just goes under Stock [Asset], however from what research I have done that does not seem to be the case. Someone asked a similar question before about how to account for their stock in end of year reports, and was told to record purchases under general purchases, but that makes no sense to me, after all stock is stock right?

Please help!

Stock is stock at month or year end else its purchases

When you say stock is stock at month or year end, what does that mean. Does that mean at my tax year end I need to know the value of my stock and input that somewhere?

yes , once year end stock is counted, it is then valued at cost or net realisable value which ever is lower and journalised in accounts as follows
Dr Stock (balance sheet)
Cr Closing stock (P&L)

Please excuse my ignorance what does DR and CR mean, is it Drawn & Credit?

Also is end of year meaning end of my tax year?

Dr - Debit side of entry

Cr - Credit

End of year is end of your accounting year which would be same as tax year but not essential

Ok thanks. I have not used journals yet and don’t really understand what they are for. I will just have to work with it and read up on it and see. Just so I know, if I don’t count my stock and enter the journal, does this mess up the figures for my Self Assessment Tax Return or is it just someone you can do if you want accurate reports for personal use?

Closing stock gets subtracted for cost of sales hence effect of taxable profit. Its essential to get it right and keep records

But isn’t the stock already accounted for and subtracted when you pay invoices, making it an expense, so why would it need to be deducted again as cost of sales, wouldn’t that mean the stock you have left is being deducted twice?

no its subtracted from cost of sale , meaning you decrease your expense
purchases 100 unit for £1 each

sold 80 units

stock 20 unit
cost of sales = purchases less stock (100-20 = 80)

But if you purchase 100 units at £1, that’s = £100, and you would raise an invoice and tag it as paid, so it counts as an expense and comes off of your taxable profit because you have spent that money.

If you still have 20 units left at the end of year, why would you take the £80 off of your taxable profits again, as it has already been deducted from your taxable profits at the time of purchase?

I’m confused!

In this example then would it be like this?

Dr Stock (balance sheet) £100, the amount you spent in that year on stock.
Cr Closing stock (P&L) £20, the amount of stock you had left.

I’m really trying to get my head around this bit. I just thought that once you purchased stock that was an expense and when you sell it that was income. And that income minus expenses = taxable profit? I just don’t really understand why it matters what stock you have left at the end of the year.

entry will be
Dr Stock (balance sheet) £20, the amount of stock you have at present
Cr Closing stock (P&L) £20, the amount of stock you had left.

this will account for correct cost in P&L

Initially while purchases booked for £100, out of that only 80 sold hence 20 is business asset booked as stock in balance sheet
say your sales are 300, if you sell every thing and no stock left then profit is 300-100 = 200
If you have 20 stock left then profit will be 300-80 (100-20) = 220

So the Dr Stock (balance sheet) and Cr Closing stock (P&L) are the same figure (The amount (value) of stock you have left). Don’t they just cancel each other out?

From what you say then profit is also made up of the stock you have left?

So If I purchased stock for £1000 in the year and sold that year £200, then my profit is -£600 right? (£200 sales minus £800 stock left).

Am I on the right tracks?

No they wont cancel out each other , one is P&L item and other is balance sheet

in your example

sale 200
less cost of sale is 200 made up of following
Purchases 1000
Closing stock (800)

that means you are selling stock at cost and not making any profit

perhaps read this http://www.futureaccountant.com/final-accounts-financial-accounting/study-notes/closing-stock-opening-stock-recording-trading-account.php

I will try to read the link, but one last stab at this.

Sales for the year 120000

Purchases for the year 35000

Closing Stock for the year 15000

profit = 100000

Of course there would be other general office and packaging expenses that would affect the profit, but is this basic example right?

yes thats correct, profit is 100k

The single thing I cant get my head around is why is closing stock counted as profit when it is actually an expense?

its not counted as profit , its counted as asset and taken out of purchase expense to calculate actual cost of good sold

But what I mean is it you just had sales of 120000 and purchases of 35000 then you would have profit of 85000, which makes more sense as you just minus what you have spent from what you have made. I don’t see the point of the closing stock figure. I guess it’s just how this setup is accounted for in the would of accounting.