Originally posted by Martin at NixonWilliams
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Reply to: Cost of Sales
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Previously on "Cost of Sales"
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Ultimately, I'd say the most important part of your post was the first bit - it's probably not that important and I would go with whatever your accountant's preference is.
Expenses - I'd consider these overheads as the costs aren't normally directly incurred by YourCo but by you personally. The cost to YourCo is simply reimbursing them so I'd think of it no differently to salary.
I wouldn't personally consider salary cost of sales as presumably you aren't paid a salary for a specific gig and would probably continue taking a salary when out of contract.
As I said in my first post it certainly seems to be very subjective and a matter of preference/style for accountants so I wouldn't worry about it unless you think there is a gods reason to?
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Thanks. I gather that there's no official guidance (e.g. accountancy standards) on when particular expenses are/aren't Cost of Sales. If everything is lumped in as an overhead then gross profit margin will be 100% regardless of circumstances. In the end, if there are no rules, then who cares? It doesn't affect tax owed.
There's a useful thread over on AccountingWeb (registration needed), the view there being that a hairdresser's salary was not an overhead. Quote:This is a common question I find - and I always say that, if the function of the individuals is to generate income by selling their time/expertise then it's cost of sales.
Anyone who does not contrbibute directly to sales is an overhead.
Pension - in my case at least (but I suspect other's too), is a sales related commission not a fixed cost. Paid as a bonus only when dividends are adequately covered. As I understand it, that's clearly CoS.
Travel expenses - the vast majority of which would be mileage, accommodation & subsistence whilst engaged on a contract - these costs would either be directly recharged to the client or factored in the rate. Either way I cannot see how these are overheads.Last edited by Contreras; 7 August 2014, 08:54.
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Originally posted by billridley View PostI like 'Orthogonal'.
Didn't cover that in my o'level English at my comprehensive.
I have to find a way to include that in my next business spec
cheers
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An example
Agree with directly attributable costs comments above.
It really depends what your business is. For example, fuel costs might be a cost of sale if you are a haulage company. If you're a software engineer, it's probably an expense.
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Originally posted by billridley View PostI like 'Orthogonal'.
Didn't cover that in my o'level English at my comprehensive.
I have to find a way to include that in my next business spec
cheers
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You what
I like 'Orthogonal'.
Didn't cover that in my o'level English at my comprehensive.
I have to find a way to include that in my next business spec
cheers
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From my creaky memory of my Cost Accountancy days, COS is what Martin has described, the effort and material costs directly attributable to the specific piece of work. All else is admin overhead.
A bit academic if you only have one or two contacts to fulfil, of course and you don't need to do detailed comparisons between different sales efforts, costed risk assessments and contract fulfilment costs.
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Ok the only thing I had in my last years accounts under cost of sales was my £60 company iOS developer program account subscription.
All remuneration and employee expense payments came under admin expenses.
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Originally posted by Contreras View PostWhich of these should be reported as "Cost of Sales", or is it arbitrary what to include? -
- Director's salary ?
- Pension contribution ?
- PAYE NICs ?
- Travel expenses ?
Reason for asking is that in MyCo's financial statement, 3 of the above are accounted for under COS whereas the other is accounted for under Administrative Expenses. I'm going to query this with the accountant but it would be nice to get other opinions. Thanks.
Cost of sales are costs directly related to the sale, for example manufacturing costs, attributable labour costs and allocated overhead costs. They are typically seen in manufacturing companies and retailers etc.
I hope this helps.
Martin
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I think there is a strong element of subjectiveness to this and different accountants might have slightly different views.
I'll dig out my last set of accounts when I get into the office and see what was under mine.
In my head I've always thought of cost of sales as direct costs in making a sale whereas remuneration is somewhat orthogonal to this.
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Cost of Sales
Which of these should be reported as "Cost of Sales", or is it arbitrary what to include? -
- Director's salary ?
- Pension contribution ?
- PAYE NICs ?
- Travel expenses ?
Reason for asking is that in MyCo's financial statement, 3 of the above are accounted for under COS whereas the other is accounted for under Administrative Expenses. I'm going to query this with the accountant but it would be nice to get other opinions. Thanks.Tags: None
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