I’m a sole trader in the UK in the process of setting up my COA and trying to get my head around which would be the best approach to enable me to quickly and simply undertake my own bookkeeping.
I wanted to enrol at College to study, but they asked for my full accounts in order to receive funding for the course. Needless to say, panic has set in and I’m trying to start entering the pile of receipts I have and generating a COA that would best suit a one-man joinery business (no employees, not limited, no PAYE…)
I do make things for customers, but haven’t tracked inventory. I appreciate that a granular COA would allow me to gain a better insight into the profitability of each job and analyse where I’m spending money (working on the assumption that there is profit :). I don’t yet make goods that I could take to market, per se, but plan on coming up with some products in the future.
Pretty much all work undertaken so far, including situations where I have used private funds to buy materials and these have been reimbursed at cost (family as customers), have not been for profit, and except for a few lengths of wood and lengthy off-cuts, have not been used for the business. All receipts have been given directly to the customer. I have charged for my time only in terms of what I am entering into the accounts package.
I’ve set up Wave, Pandle, and now Manager is downloaded and I’ve started to create my records. I also have a number of spreadsheets (monthly templates).
I’m confused as to whether to use Inventory or not, whether I should really worry about COGS and then all of the allocations of resources purchased, especially when some things are never stipulated in the Sales Order (for example, my brother took over the tenancy of a pub, and I was asked to create him a beer garden. I’ve put up fencing, laid paving, bought plants, made a number of very large planters, etc. etc. All materials were paid for with both upfront and delayed funds by my brother. I have billed him for my time, NOT the planters, or the fence, or the paint used.)
My next potential customer, however, wants me to build two log stores. I’ll have to ask him to pay a deposit to cover materials. So this is where the COGS confusion comes in. As the customer will pay a deposit, materials I purchase will be used solely for the construction of the two stores. But are the stores classed as goods sold? Or are they the end product of a process of satisfying the customers request to supply him with two log stores? In my head there is a difference. But in accounting terms are these the same thing?
I am keen to hear your suggestions or even past experience in setting up a small ‘craft’ business, and whether that granularity is overkill or not. I have no investors to answer to, my wife keeps pushing a bit of cash my way to buy materials and tools, etc.