20250108134301-Effect_of_Stock_on_Revenue_Source_Costs

Effect of Stock on Revenue Source Costs

From bib. source

When goods are manufactured or purchased for resale, they are rarely all sold in the same financial period. This gives rise, therefore, to stocks at the end of a financial period and the start of another.

Stock is the supply of goods or services available for sale, or that are to be sold. That is, stock is the supply of commodities. If the stock is not, so to speak, “homegrown,¨ then the firm is doing one of the following:

• Paying for the production of units of stock by some other firm
• Purchasing the units of stock from some other firm

If the stock is “homegrown,¨ then one is at least doing either of these for other current assets.

It is common for stock to be frequently purchased while keeping some reserve to keep pace with the frequency of sales (Kind 1999, 28). A profit and loss account must then keep track of opening stock costs, newly acquired stock cost, and the cost of lost or sold stock for the given period to get a final stock cost for that period.

Opening stock costs plus cost of new stock, then minus cost of stock lost or sold equals final stock costs

Wherein $C_{r=1}$ is opening stock cost, $C_{r=2}$ is the cost of newly acquired stock, and $C_{r=3}$ is the cost of stock that has been lost or sold, $C_r$ is the final stock cost:

$$C_r=(C_{r=1}+C_{r=2})-C_{r=3}$$

Hence, the final stock cost for one period is the opening stock cost for the next period (Ibid).

For a given period, the revenue generated from sold stock minus the final stock cost, i.e. minus the cost of sales or cost of revenue, constitutes a gross profit.

Revenue (from sales) minus final stock costs equals gross profit

Recall $P_g=R-C_r$, wherein $P_g$ is gross profit.

current_assets gross_profit profit_and_loss_account profit_and_loss_statement assets expense expenses expenditure finance math mathematics mathematical_operator mathematical_operators subtraction addition subtraction_operator subtraction_operators addition_operator addition_operators sum difference formula formulae formulas

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bibliography

• “The Profit and Loss Account in More Detail.” In Accounting and Finance for Managers, 25–37. The Fast Track MBA Series. Dover, NH: PriceWaterhouseCoopers, 1999.