Stock and Cost of Goods Sold



The terms ‘stock’ and ‘cost of sales’ have appeared frequently in preceding chapters. In many of the examples stock had been acquired by purchase and re-sold to provide sales revenue, stock remaining at the end of a period appeared under Current Assets in the balance sheet (Sect. 3.7). Cost of Sales (alternatively known as Cost of Goods Sold) is the term used in the profit and loss account to describe the amount of stock used up or sold in the accounting period. We have assumed to date that the value of closing stock and of cost of sales is known. We have not confronted the variety of problems which a business faces in measuring both the quantity and value of stock used during a period, and the quantity and value of stock remaining at the end of a period. The figures which form part of the annual financial statements are determined by a mix of physical characteristics, valuation assumptions and the application of accounting concepts and bases. Chapter 7 will introduce some of the measurement problems associated with stock and cost of sales, and Chapter 8 will extend the discussion.


Balance Sheet Average Cost Financial Accounting Sales Revenue Replacement Cost 
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Notes and References

  1. 1.
    SSAP 9 ‘Stocks and Long-Term Contracts’.Google Scholar
  2. 2.
    In this example capital maintenance has been explained in terms of operating capacity. For a further discussion of the meaning of capital maintenance see section 14.2.Google Scholar
  3. 3.
    As we saw in section 7.5 this can be partially achieved by the use of LIFO.Google Scholar

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© Arthur Hindmarch and Mary Simpson 1991

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