Goods for resale

What it means

Goods for resale are stock bought to be sold on unchanged. They are not materials that go into production, nor finished goods: what decides is the purpose of the purchase, not the nature of the item.

The same item can be goods in one company and materials in another. As soon as substantial processing is added to the purchase, the stock stops being goods for resale and becomes an input to production.

Items bought for the company’s own use, such as office supplies or a computer for the office, are not goods for resale: they go straight into costs or into low-value assets. Conversely, the company’s own product becomes goods for resale once it is transferred to its own shop and is only sold on from there.

How it works in practice

Goods are valued at acquisition cost including freight, duty and insurance. Movements are tracked in stock records, and once a year the balance is verified by a physical count against the ledger.

They are posted under method A or method B. Under A the purchase goes to stock and into costs only on sale; under B straight into costs, with closing stock booked at year end from the count.

An online shop buys the same product again and again at different prices. Issues from stock are then valued at weighted average cost or on a FIFO basis. We record the chosen method in the internal policy and it does not change during the year, otherwise margins cannot be compared from month to month.

What to watch out for

Under method B the year-end entry from the stock list gets forgotten. A whole year of purchases stays in costs, profit is understated by the value of the warehouse, and the wrong tax base has to be fixed by an amended return.

A gap between the stock records and the count is often quietly closed with a single entry. Yet a shortage above the norm for natural losses is a non-deductible cost unless the responsible employee or an insurer covers it, and a VAT payer also has to review the input tax deducted on the purchase.