Opening and closing stock
Description

Learn how to calculate the profitability of your stock items when you record the stock purchase on your balance sheet.

Why do this?

If you’re dealing with buying and selling stock items, it’s crucial to understand their profitability. That way, you can assess how your business is doing. The Profit and Loss Report shows the value of your sales and purchases.

Correctly calculate stock profitability and show the cost of sales on the Profit and Loss Report. Account for unsold stock at the end of a given period. If you don't, unsold stock can create inflated profits or even a loss on the report.

Cause
Resolution

How it works

By default, the Profit and Loss Report calculates gross profit without opening and closing stock:

  • Sales – purchases = gross profit

Adding opening and closing stock journals allows you to demonstrate the cost of sales:

  • Opening stock + purchases - closing stock = cost of sales

Subtracting the cost of sales from your total sales provides a more accurate picture of gross profit in a given period:

  • Sales – cost of sales = gross profit

Refer to our example cost of sales calculation below to understand its application.

Enter your opening and closing stock

To report on the cost of sales, post opening and closing stock journals to account for this.

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