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bigduckontax
bigduckontax, Accountant
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UK Business Tax: I'm looking to start a new business and

Customer Question

UK Business Tax: I'm looking to start a new business and will be purchasing £10,000 in physical goods/stock. How does it work when it comes to writing that off as an expense? As far as I'm aware, physical goods aren't considered an "expense" until you've
sold them. Does this mean internally, I need to make sure I have written down what I paid for every item so that when it comes to it being sold, I can mark that down as the expense? What happens if a product doesn't sell for 1-2 years and loses value. Do I
still write it off an as expense of the original purchase amount? I will be self-employed.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.
Book keeping entries for such transactions would be as follows.
On purchase of goods/stock; Credit Stocks, debit Cash/Bank.
As you sell the stock you keep a record and say once a month or week, depending on the speed of turnover, as you sell the following transactions take place.
Debit cash/bank, Credit Sales, debit Stocks [at cost], credit Cost of Sales.
Thus your books will always reflect the value of unsold stocks to be included in the balance sheet and the value of those sold; an expense. In the simplest of terms a profit and loss will fall out of the books of account. Many retail businesses do this by taking stock at the year end to determine the level of stocks to pass to the balance sheet and the amount of stocks appropriate for inclusion in the cost of sales for the profit and loss account.
If you are self employed you must so register with HMRC and they will send you a self assessment tax return to complete at the end of every tax year. You will also be expected to pay an estimated half the annual tax due every six months once you get going.
I do hope that I have shed some light on your position.
Customer: replied 1 year ago.
Thanks for that great reply.Can I just clarify the following."Thus your books will always reflect the value of unsold stocks to be included in the balance sheet and the value of those sold; an expense."The expense amount will be the exact amount that the product cost to buy at it's original value?
Expert:  bigduckontax replied 1 year ago.
You have it to a T! Stocks are always entered in the books at cost. Actually, when you take stock at the year end they should be valued 'at cost or net realisable value.' Thus any 'dead' stock is automatically written off as an expense.
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