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Create the opening and closing stock nominal ledger accountsīy default, you already have a balance sheet stock nominal ledger account, which is code 1000. To report on the cost of sales, you'll need to ensure unsold stock is accounted for by posting opening and closing stock journals. You'll notice the profit for the two month period is the same, £14,000 in total, but posting opening and closing stock means you can track profitability month by month.
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The calculation with opening and closing stock is:
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However, this doesn’t take into account the £5,000 of stock remaining from January. Gross profit without stock journal entries would be sales minus purchases. In February, you sell the remaining £5,000 worth of stock for £12,000. Sales: £12,000 – Cost of sales: £5,000 = January Profit: £7,000.Īccounting for the closing stock reflects the profit more accurately. This method however, doesn't take into account the £5,000 worth of remaining stock and the cost of sales. In January, you purchase £10,000 worth of stock and sell £5,000 worth of stock for £12,000.Ī gross profit calculation without stock journal entries would be sales minus purchases. You may like to refer to our example cost of sales calculation to help your understanding on how it's applied. The cost of sales is then taken off your total sales to give a more accurate picture of gross profit in a given period: Opening stock + purchases - closing stock = cost of sales.If opening and closing stock journals are added you can then demonstrate the cost of sales too: How it worksīy default the Profit and Loss Report calculates gross profit without opening and closing stock: If you don't, unsold stock can create inflated profits or even a loss on the report. To correctly calculate stock profitability and show the cost of sales on the Profit and Loss Report, you need to account for unsold stock at the end of a given period. The value of your sales and purchases appears on the Profit and Loss Report. If you buy and sell stock items, it’s important to know their profitability so you can analyse your business's performance. Only follow the steps in this article if you’ve recorded the purchase of stock to your balance sheet.
#SAGE STOCK HOW TO#
This explains how to calculate the profitability of your stock items, when you record the purchase of stock on your balance sheet.