Hi all. I’m very brand new and was hoping for help with a quick question before I start the long road of potentially making the same mistake over and over!
I have a very small business which will be as a sole trader, and I make paper goods which I sell wholesale to shops. I have to buy supplies to make the products, and have been adding these to the nominal account ‘1001 stock’ as I guessed they will eventually make up stock for me. But, when I look at the P&L it doesn’t deduct these as expenses. Should I be categorising these purchases as ‘5000 general purchases’ instead? Otherwise it looks like I’ve made lots of money, when I really haven’t, I’ve spent lots instead!
I really appreciate someone pointing me in the right direction. Thanks so much!
Yes, purchases of goods for resale or materials to be made into said goods would be “general purchases”. You then make adjustments at year end for the value of stock that you hold at the year end date in order to work out your true cost of sales for the year, i.e. the cost of the material that went into the things you have actually sold - there are a number of posts on here discussing how this works.
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Thank you! Makes perfect sense.
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