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Voitto Knowledge Base

Purchase of goods and services

Last updated: 2021-06-17

Many different factors come into play regarding purchases and how they should be handled, including what is purchased and what the purpose of the purchase is.

Goods

When you buy physical goods, they are handled in different ways depending on the purpose of the purchase and the cost.

Consumables

Consumables are things that have a short lifespan (less than a year) and that are of insignificant value. Typical examples are batteries, toilet paper and light bulbs. It can also be material used in manufacturing as long as it is not part of the product being manufactured.

Consumables are expensed directly in the income statement.

Consumable inventories

Consumables are inventories that are expected to have a lifespan of less than three years. In addition, they must not cost more than ½ the price base amount (for 2021, half the price base amount corresponds to SEK 23,800). Typical examples of consumables are a computer, mobile phone or vacuum cleaner.

Consumables are inventories that are expensed directly in the income statement due to a shorter lifespan or a lower purchase price.

Inventory

Assets are things that have a longer economic life and must be included in the balance sheet. They have a lifespan of more than one year and normally cost more than ½ the price base amount (for 2021, half the price base amount corresponds to SEK 23,800).

To keep track of your inventory, you use a facility register. In addition to keeping track of which assets you have in the company, the facility register is used to keep track of the value of the assets. This is because inventory is depreciated over its useful life and the value changes. For example, if you buy a car and estimate the economic life to be five years, you will depreciate the value by 20% per year.

Assets are also called fixed assets and can be, for example, machines, cars and computers.

Inventory

An inventory is goods that have been manufactured or bought in to then be resold. These are counted as an asset for the company and must be recorded in the accounting.

For a smaller company, the most common thing is to only manage the stock at the end of the year each year, in this way both the bookkeeping and handling become easier. The alternative is to instead handle all events that change the inventory separately, i.e. to book every purchase that is added to the inventory and then every sale that reduces the inventory.

Valuation of the stock

The purpose of inventory accounting is to keep track of the value of everything you have in stock. Normally, the inventory is valued at acquisition value. Direct costs such as shipping, customs, import and the like must be added to the acquisition value of acquired goods.

Self-made goods

Goods that the company manufactures itself must be valued at the direct costs that can be attributed to the manufacture. It is e.g. hours worked, social security contributions, raw material costs, subcontracting and the like. The difference with in-house manufactured goods is that a reasonable portion of indirect costs can also be counted. For example, it could be depreciation on a certain machine, leasing costs for another machine and so on.

Obsolescence

Obsolescence means that in the valuation of the stock we must take into account that some goods are damaged, obsolete or similar. The purpose is to identify goods that may not be able to be sold or that must be sold for a price below acquisition value.

Stock certificate

If you have a stock that is handled annually in connection with the financial statements, you must produce a stock certificate. The company must then take inventory of all the items in the warehouse and produce the purchase price and the estimated sales value. It is therefore good to use a special inventory system for your warehouse where you can keep track of when goods are bought in and sold. However, you still need to take stock of the inventory every year to check that it is correct.

Example of a template for a stock certificate: Stock certificate Template.xlsx (Excel format)

Tips for inventory

  • Normally, inventory must take place on the closing day, which may coincide with a holiday. Therefore, plan inventory well in advance.
  • Take a list out of the inventory system and systematically go through it and check count the items and note differences. For example, if the inventory system has a balance of 10 items but the control count says 8, the difference should be noted so that the balance in the inventory system can be updated later.
  • Check count items with larger differences to avoid miscounting.
  • Mark the stock locations that have been inventoried.
  • Transfer inventory balances into the inventory system when the inventory is completed.
  • Make an assessment of articles that you do not think will be sold or that are expected to be sold at a discounted price that is lower than the purchase value (obsolescence).

Services

For the purchase of services, a similar arrangement applies as for goods, where a distinction is made between services that have a direct connection to the main business.

Lego works and subcontracts

This means services that are directly linked to the main business. Subcontracting means outsourcing, for example, manufacturing, packaging or distribution to another company. Meanwhile, subcontracting refers to bringing in a company that performs work for its customers.

Other Services

Other services cover all forms of services that are needed for day-to-day operations but that do not have a direct connection to the main operation. Examples of other services are telephony, electricity, shipping and advertising and PR.