Month one

In January, you purchase £10,000 worth of stock and sell £5,000 worth of stock for £12,000.

A gross profit calculation without stock journal entries is sales minus purchases.

• Sales: £12,000 - Purchases: £10,000 = Gross Profit: £2,000

This method, however, doesn't include the £5,000 worth of remaining stock and the cost of sales. That calculation looks like this: 

• Opening stock: £10,000 – Closing stock: £5,000 = Cost of sales: £5,000

• Sales: £12,000 – Cost of sales: £5,000 = January Profit: £7,000

Accounting for the closing stock reflects the profit more accurately.

Month two

In February, you sell the remaining £5,000 worth of stock for £12,000.

Gross profit without stock journal entries is sales minus purchases.

• Sales: £12,000 - Purchases: £0 = Profit: £12,000

However, this doesn’t include the £5,000 of stock remaining from January.

The calculation with opening and closing stock is:

• Opening stock: £5,000 – Closing stock: £0 = Cost of sales: £5,000
• Sales: £12,000 - Cost of sales: £5,000 = February Profit: £7,000

Summary

Posting opening and closing stock lets you track monthly profitability, even though the total profit for the two-month period remains £14,000.

By default, you already have a balance sheet stock nominal ledger account, code 1000. You also need to create profit and loss nominal ledger accounts for opening and closing stock.

1. From Settings, then Business Settings, select Financial Settings and then Chart of Accounts.

2. Select New Ledger Account and complete the required information.

   Ledger account fields explained:

Included in Chart	Leave this selected
Ledger Name*	Opening stock
Display Name*	Opening stock
Nominal Code*	5200 If code 5200 is already in use, enter a different code. It doesn’t matter what code you enter as it’s the category that determines where it appears on your reports.
Category *	Direct Expenses
VAT Rate	No VAT
Visibility	Leave the defaults selected

3. Select Save.
4. To create your Closing Stock, repeat the steps and use a new nominal code, for example, 5201.

If you have stock in your nominal ledger account (code 1000), transfer it to your profit and loss opening stock account (code 5200).

If this is the first month you’ve purchased any stock, you won't have a value on your balance sheet for stock. Record the purchase as normal, then the first journal to post is a closing stock journal. For more information, see the End of month one – Closing stock journal below.

1. From Journals, select New Journal.
2. Enter a date and reference.
   This doesn’t have to be the first day of the month. The reports will show the correct values as long as the date is in the correct month.
3. Enter the relevant information for your journal

    

    

   .

    
   See Example:
   

   Ledger Account*	Details	Debit	Credit	Include on VAT Return?
   Stock (1000)	Opening stock		Value	Leave clear
   Opening stock (5200)	Opening stock	Value		Leave clear

4. Select Save.

The value of your stock has now moved to the profit and loss account. The balance remains as a debit on the opening balance nominal ledger account 5200 for the rest of the year. The value in your closing stock account offsets this value.

At month-end, transfer the closing stock value to the balance sheet stock nominal ledger, making the stock an asset on the Balance Sheet Report.

You can now produce the Profit and Loss Report from Reporting.

Post a journal. Move the value of the opening stock from the balance sheet stock nominal ledger account 1000 to the profit and loss account 5201.

The opening stock value for month two is the closing stock value for month one.

Repeat these steps for each month you want to record the opening stock.

Post a journal to move the value of the opening stock to the balance sheet stock account:

At your financial year end, when you create a report in the new year, the values transfer to the profit and loss account (3100).

You'll see this in the Equity section of the Balance Sheet Report, Your unsold stock is an asset on the nominal ledger account 1000.

Follow the steps in the Start of month one or your financial year section to start posting opening and closing stock for the new year.