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Community > Small Business >

Adding expenses to an item in stock inventory

Started by Beth Cotton -   in Small Business

Hi there,

Not only am I new to Xero, I am new to everything book keeping!
So we purchase cars, fix them up if needed and sell them on. After adding an individual car to the inventory how do I then later add costs against that car??

Say we purchase a car for $200 - and will later sell for $500, but have had to buy and fix a part on the car for a total of $120.. how and where do I add that in to adjust our profit etc??

I hope this makes sense?
Hi Beth,

The answer to this depends a little bit on how you sell the cars. If you itemise what you've put into the car (like a mechanic would), you simply purchase and then sell the extra parts etc as separate Inventory items.

However, if you just sell the fixed up car, then the extra parts and supplies would be considered additional costs relating to "improving" the items you sell and are shown in the Cost of Sales section of your P&L - only the cost of buying the item itself goes into Inventory. To give you a crash course on how this works: your P&L statement will have a section for Income and then an expense section called Cost of Sales. Income minus Cost of Sales is your Gross Profit on what you've sold.

At its most basic level, if you're using tracked inventory, Cost of Sales is where the system puts the purchase value of your inventory items once you sell them - when you buy an inventory item (car), the system puts the cost of it into Inventory. Then, when you sell the inventory item (car), the system transfers the value you purchased it for into a Cost of Goods sold account in the Cost of Sales Section. However, you can also create other Cost of Sales accounts to track any other costs incurred in getting inventory ready for sale (these are created as "Direct Costs" expenses). Examples of these might be wages or subcontractors directly related to fixing the cars up, the costs of extra parts and consumables for fixing them up, etc. You can create whatever Cost of Sales accounts you want, depending on how much detail you want to see - for example, for parts etc, you can just have a generic "Repair Costs" account where you dump everything, or you can break it down by type if you want to see what's costing you the most overall (e.g. separate accounts for Parts, Paint, Upholstery, etc).

I hope this is helpful - please let me know if I haven't explained something clearly.
 

Zosia Romanowski