Home – New Forums Money matters Products not sold until after EOFY

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  • #988320
    Slow_poke
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    Hey everyone,

    Hope this isn’t a stupid question.

    I have just been talking to one of my friends who also owns a business, he has told me that the products I bought this year and will sell next year will be considered a total profit because it is a clean slate next financial year. Is this true? Can someone enlighten me on this?

    Might be easier to explain like this:

    If I buy an item at $100 before EOFY
    I sell at $110 in new financial year.

    Is this considered a business profit of $110 not the actual $10 which I have gained profit on the item?

    Hope this makes sense.

    Thank you,

    Slow_poke

    #1166676
    Daniel Mitchell
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    Hi there

    Not an accountant so this is my opinion only, seek independent financial advice, blah blah blah. Simple answer, no he is incorrect. Inventory is an asset and at the end of the financial year it is carried forward to the next year and any sales still have the same cost of sales component. Depending on the type of inventory it can be depreciated or written back which can effect its value, but this isn’t necessarily related to the end of year and can be accounted for at any time. Odds are though this won’t effect you and you can carry on as usual. Best to ask your accountant of course who can give more specific advice for your business.

    Sent from my iPhone using Tapatalk

    #1166677
    Luth6322
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    Hi Slow Poke

    Daniel is right, you only get taxed on the profit when you sell the item.

    Therefore the purchases you made this year $100 will also be included as your closing inventory $100 and will in effect off set the goods you purchased but did not sell. Once you sell the item $110 your inventory reduces by $100 and as such you recognise the purchase (cost of goods sold) and will be offset again the sale, net impact being profit of $10.

    It does mean that the purchase will not offset any income earned this year, but rather once you sell the item ie. next financial year.

    Cheers

    Carrie

    #1166678
    Greg Mawer
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    Hi Slow Poke,

    If your stock movement is under $5,000, this link to the ATO may be useful for you:

    https://www.ato.gov.au/Print-publications/Concessions-for-small-business-entities/?page=74

    Regards,

    #1166679
    affgar
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    Very useful information guys & girls :)

    Love the community contributions at Flyingsolo!

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