Goods for resale: Stock, Purchases, Sales, Carriages and Returns

Study Zone Institute May 9, 2023 Business and Accounting Basics

Accounting for goods for resale requires a precise understanding of how stock, purchases, and sales interact with returns and carriage costs to determine net profit. This article provides a comprehensive breakdown of the essential accounts used to track inventory throughout the business cycle.

It explains the distinction between stock and inventory as assets, while categorising purchases and sales as the primary drivers of trading activity. By examining the impact of carriage inwards and outwards, alongside the mechanics of returns and discounts, the guide offers a clear framework for accurate financial reporting.

Readers will gain clarity on how these variables influence the cost of sales and gross profit within formal financial statements. This resource serves as a foundational pillar for students and professionals aiming to master the classification of business transactions and ensure the integrity of their ledger accounts.

Key Takeaways

Accounting for goods for resale involves categorising items based on their movement and current status within the business.
Stock and inventory represent goods currently held by the business and are classified as assets on the balance sheet.
Purchases and sales accounts record the acquisition and disposal of trading goods whether via cash or credit transactions.
Carriage costs and returns must be properly adjusted against purchases and sales to calculate accurate net trading figures.
Discounts allowed and received function as expenses or income that further refine the final profit or loss calculation.

Goods for resale are the products that a business either produces or buys in bulk to sell for the purpose of making a profit. The cost of producing or buying these goods must be cheaper than the selling price that a business sets in order to make a profit.

Even when a business gives out samples of the product for marketing purposes, the cost of the giveaways is usually calculated in the selling price to ensure a profit is made. Goods for resale are categorised under several accounts for different activities.

9 terms for goods for resale

Stock and Inventory

Stock and Inventory are goods for resale in hand. Stock is the finished product that is ready to sell in the market. Inventory is the finished product that’s ready to distribute, the work in progress goods which is not completely converted into finished products and the raw material used to create the finished product (ASP Computers). Stock and Inventory are Assets.

Purchases

Purchases are the goods bought from suppliers either with cash or on credit. When the business buys goods for resale using cash the transaction is called Cash Purchases. When the business places an order for goods but has not paid for it as yet it is called Credit Purchases. The supplier is called a Creditor and the invoiced amount that the business owes is called Accounts Payable. Purchases is an Expense.

Sales

Sales are the goods sold to customers either for cash or on credit. When the business sells goods and collects cash the transaction is called Cash Sales. When a customer places an order for goods but has not paid for it as yet it is called Credit Sales. The customer is called a Debtor and the invoiced amount that is owed to the business is called Accounts Receivable. Sales is Income.

Carriage Inwards

Carriage Inwards is the transport cost of goods for resale into the business from a supplier. This cost is an Expense to the company that is incurred when the purchase of goods is made. Carriage Inwards is added to the Purchases cost in the financial statements to give an accurate total of Cost of Sales.

Carriage Outwards

Carriage Outwards is the transport cost of goods outside of the business to a customer. This cost is also an Expense to the company that is incurred when the sale of goods is made. Carriage Outwards is subtracted from Gross Profit in the financial statements to give an accurate total of Net Profit.

Returns Inwards

Returns Inwards are the goods brought back to the business from customers. This cost is an Expense to the company as it reverses the Income of the sale that was recorded. Returns Inwards is subtracted from Sales in the financial statements to give an accurate total of Net Sales.

Returns Outwards

Returns Outwards are the goods sent back to the suppliers from the business. This cost is Income for the company as it reverses the Expense of the purchase that was recorded. Returns Outwards is subtracted from Purchases in the financial statements to give an accurate total of Cost of Sales.

Price cut on goods for resale

Discount Allowed

Discount Allowed is an amount that is cut off of the price of goods sold to customers. The business allows discounts for several reasons. It attracts new customers, gets rid of old goods fast, increases sales and saves money (Chron). Discount Allowed is an Expense to the business since the Income made is less than the selling price.

Discount Received

Discount Received is an amount that is cut off of the price of goods purchased from suppliers. The business receives discounts when suppliers want to reward their loyalty or entice them to buy more (Chron). They may even want to get rid of old goods fast. Discount Received is Income as it reduces the Expense of purchases that the business made.

Summary of Account Classifications

Account	Classification	Impact on Financials
Stock / Inventory	Asset	Increases value of current assets
Purchases	Expense	Increases cost of sales
Sales	Income	Increases total revenue
Carriage Inwards	Expense	Added to purchases
Carriage Outwards	Expense	Deducted from gross profit
Returns Inwards	Expense (Contra-Revenue)	Deducted from sales
Returns Outwards	Income (Contra-Expense)	Deducted from purchases
Discount Allowed	Expense	Reduces net profit
Discount Received	Income	Increases net profit