How to account for Cost of Sales in a service industry?

I run a small business which is a video production company, and have a point of confusion about account records: most literature I have seen is geared towards businesses which buy stock, and sell it at a profit.

That is not appropriate for me as a service industry, as stock purchases are minimal – we buy blank media but we sell those along with production services.

However we do have plenty of ‘cost of sales’ – my question is, should these be counted as ‘stock purchases’ in the various conventional accounting templates? To add to the confusion, cost of sales are more often than not services themselves, such as hiring in equipment or freelance personnel, or using couriers or duplication companies.

Perhaps someone could recommend a book on accounting for service industries, especially creative! As it’s very annoying never fitting in with examples books give…..

But if someone could just give me an idea of how to analyse those expenses I’d be very grateful…. Ta!

Thanks!
Jay A’s answer, though amusing, is wrong. He is referring to fixed costs. Which are separate from stock purchases, which are a cost of sale factor.

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2 Responses to “How to account for Cost of Sales in a service industry?”

  1. Paul S says:

    a cost of sale is a direct cost of something in order to make a sale as rightly stated by urself it is mainly attributed to purchase of stock for resale along with such costs as packaging and carriage.

    with regards to your business, what do you have to buy in order to produce these videos? any consumable items like dvds, tapes, etc.. if your purely a service business then it maybe you dont have any cost of sale and all you costs are fixed costs. would need a bit more info on the types of expenses incurred in order to see if any can be classed as cost of sale.

    at the end of the day it doesnt really make much diff as its really only for disclosure purposes in accounts and on tax returns etc..

    best thing to do is buy sage line 50 and do it on the computer, this has all the codes of where to put expenses and does all the reporting u need. visit http://www.sae.co.uk . it would cost you about £150 depending on what package u go for.

  2. Jay A says:

    Cost of sales has nothing to do with stock purhase. The cost of sales is the cost of paying your employee’s, your rent factor ( taxes, rent, utiities, etc. and your interest payed on your inventory).
    Add all these things up and they are your cost of sales.
    If you need someone to manage your business for you, and it sounds like you do, give me a call.

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