where to adjust profit for stock.

rssteve

Hello. Im just doing last years SA, the previous year a friend who is an accountant did it for free, but they are currently away and it seemed easy to do. 05-06 we valued closing stock at £2000. I can't remember where this was filled in on the online form, or if it was just deducted from the expenses. I think it was just added between 3.65 to 3.76 so the profit for tax purpose was £2000 more.

Can someone confirm if this is correct or if i should have a box for stock value?

Also i am now doing this years 06-07 and have valued stock at £5000. Do i just add £3000, or do i remove the 2000 from last year then add the 5000 to somewhere?

Thanks for any help.

CIS

The gross profit is calculated by taking the total sales and then deducting the cost of goods sold (purchases of stock + opening stock - closing stock).

looks like it should be in box 3.46 if your turnover is over £15K otherwise you dont need to break the figures down

rssteve

so what you are saying is that on my SA, i don't actually list the stock value not sold? I take this away before filling in box 3.46?

Do i have to list the figure anywhere or not?

mrkbrrws

Box 3.46 should be your cost of sales, which is calculated as CIS posted (purchases add opening stock less closing stock, i.e. purchases - £3,000 in your case).

Bear in mind that your stock figure should be valued at the lower of cost and realisable value.

You only need to show stock separately if you prepare accounts that include a balance sheet (Box 3.101).

rssteve

ok so looks like my accountant friend filled last years out incorrectly then. as box 3.46 include cost of all stock brought that year, then he deducted the 2k stock value between 3.65 and 3.76. so 3.65 was £2040, and 3.76 was £4040. Or is that an acceptable way to do it? Cheers for the advice

Debt_Free_Chick

rssteve wrote: »

ok so looks like my accountant friend filled last years out incorrectly then. as box 3.46 include cost of all stock brought that year

That would be right

then he deducted the 2k stock value between 3.65 and 3.76. so 3.65 was £2040, and 3.76 was £4040. Or is that an acceptable way to do it? Cheers for the advice

3.76 should have been copied from 3.73 - with 3.73 basically being 3.65 adjusted .... but the adjustments have nothing to do with closing stock.

Closing stock shouldn't be entered anywhere here (if you have a balance sheet it would go in 3.101 ... but that's nothing to do with calculating your profit/tax liability)

My gut feeling is that your profit was overstated last year and you may have paid too much tax.



Oversimplified explanation ......

The cost of buying stock is a deduction from turnover - rather like allowable expenses, but for accounting purposes it's labelled as "cost of sales".

Let's say you buy & sell toys. You buy 100 toys that cost £100. You have absolutely no other overheads or expenses. You sell the toys for £150. Your P&L would be turnover £150, less cost of sales £100 producing a profit of £50. The £50 profit is transferred to the balance sheet so you have "an asset" of £50

If you only sold 75 toys ... t/o £112.50, cost of sales £100, profit £12.50

Balance sheet .... profit (from P&L) £12.50 plus stock valued at £25 ... total assets £37.50

In both cases, you deduct the cost of the stock you actually bought - the value of any stock unsold at the end of the year does not enter into the calculation of profit.

Debt_Free_Chick

rssteve wrote: »

ok so looks like my accountant friend filled last years out incorrectly then. as box 3.46 include cost of all stock brought that year, then he deducted the 2k stock value between 3.65 and 3.76. so 3.65 was £2040, and 3.76 was £4040. Or is that an acceptable way to do it? Cheers for the advice

Has he put anything in boxes 3.30-3.45 or in boxes 3.66-3.71?

rssteve

Debt_Free_Chick wrote: »

Has he put anything in boxes 3.30-3.45 or in boxes 3.66-3.71?

no he hasn't is this where the problem may be

Debt_Free_Chick

rssteve wrote: »

no he hasn't is this where the problem may be

Not necessarily - I was just wondering if he'd put the stock in there by mistake or if there were other amounts that coincidentally added up to £2k.

But it is a little odd that you have no disallowable expenses and no capital allowances. Or it could be that you didn't have any capital expenditure (e.g. equipment) and that your P&L has been prepared using only allowable expenses. Many SE folk don't even bother with a "full P&L", which is fine for doing your tax return.

I think he's made a mistake :eek: Probably best to wait for him to return from holiday as, if he has made a mistake, then it's probably best to notify that first to HMRC, before submitting this year's return.

Curious to know ..... will you post back and let us know the outcome?

rssteve

I have now looked through and worked it out. I had originally filled out the turnover over 15k but as it was below that for last year we only needed to do the basic one, that was confusing me as i had got some of the figures wrong which is why my friend helped me.

3.24 was 8979
3.25 was 4939
3.26 was 4040

Total expenses for 05-06 were 8939, this is where the end of year stock was deducted. Not sure why i had 2000 in my head when infact it was 4000.

Thanks for all the help.

cash99

Debt_Free_Chick wrote: »

Oversimplified explanation ......

The cost of buying stock is a deduction from turnover - rather like allowable expenses, but for accounting purposes it's labelled as "cost of sales".

Let's say you buy & sell toys. You buy 100 toys that cost £100. You have absolutely no other overheads or expenses. You sell the toys for £150. Your P&L would be turnover £150, less cost of sales £100 producing a profit of £50. The £50 profit is transferred to the balance sheet so you have "an asset" of £50

If you only sold 75 toys ... t/o £112.50, cost of sales £100, profit £12.50

Balance sheet .... profit (from P&L) £12.50 plus stock valued at £25 ... total assets £37.50

In both cases, you deduct the cost of the stock you actually bought - the value of any stock unsold at the end of the year does not enter into the calculation of profit.

Debt Free Chick were did you learn your accounting.

Cost of Sales is a description. It means the cost of what you have sold not the cost of what you have bought. In your example above cost of sales should be £75, and this should be put on the tax return. If you read the notes that go with the self employed section of the tax return this ie very clear.

http://www.hmrc.gov.uk/worksheets/sa103-notes.pdf