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Example: You have just formed a new company which rents a small Hotel and Restaurant. Some of your sales are Meals and Bar Sales.

You buy Food from Supplier A
You buy Beer & Wine from Supplier B


Now here is the question:
What Nominal code would be most appropriate in this case. And why? for:

1)Food

2)Beer & Wine

1)I put 5000 for Food which is Material purchase (as we use food to make meals)

2) I put nominal code of stock which ever it was...

Am I correct? And explain why these Nominal codes fit.

Thank you

The terms I use for these are Wet and Dry sales.

There are no right and wrong ways, just lots of different ways, the way you phrase the question, suggests you have realised this.

The problem is that what you buy during the month is not the same thing as you sell during the month. You have some stock that you have at the beginning of the month and some stock at the end of the month so what you sold was what you had at the beginning plus what you bought, less what was left at the end.

Now there are problems with this. The main one being that counting all the stock is a time consuming process and some things are not easy to count, for example how many pints are left in this barrel?.

In this sort of trade, though control of stock is what it is all about, you need to be able to see if a barman is serving drinks to his mates all night and not charging.

So we have to make some compromises and where and what these compromises are, depends on the business.

For example on the food front (dry sales) we might not use a lot of preserved food and the stock levels might not change a great deal, so we might not check the stock, we might say what we buy in a month is what we sell, it is not strictly accurate, but it is a simple solution, if the turnover in food is £20,000 and the stock is worth £500 then there is not a huge scope for inaccuracy the most we can be out is £500 on £20k which is only a couple of percent.

Similarly with the wet sales, beer does not hang around long, so we might count all open barrels as half full and say that the amount of beer on tap at any time does not vary hugely from one month to the next. Now it is possible you might have 5 almost empty barrels one month and 5 nearly full the next, so you need to consider how important that is in the scheme of things, if you have 25 barrels in the cellar plus 5 that are open and counted as 2.5 which could be between 0 and 5 then the margin of error is plus or minus 10%. If you sell 100 barrels a month and stock makes up 25% of the monthly turnover, then your 10% error in the stock take is only 2.5% error in the monthly turnover which to my mind is an acceptable error.

There are other ways of estimating stock, I know someone who says stock used is 25% the value of sales, we do a stock check and see how much drift has happened. The figure is fixed to always give a small positive drift and a small boost to the P&L when checked.


I would separate wet stock and dry stock so I might have nominals like this

1010 Wet stock
1020 Dry stock

4010 Wet Sales
4020 Dry Sales

5010 Wet Purchases
5020 Dry Purchase


Each month you make an adjusting journal between wet purchases and wet stock to make the wet stock figure match up with your stock take or other system for estimating stock. You do the same for dry.

Now, I have left big gaps in the numbers, because you might want to break it down further.

On the dry side, you probably want to separate bar snacks crisps etc from the kitchen stock and you might want to break that into preserved and fresh.

On the wet side, you might want to separate into spirits, beers, wine and mixers. Whilst doing a full stock check every month might we a lot of work, you will find that some things like mixers are not much of a problem are a pain to count and don't really need checking frequently, whereas the spirits and wine are easy to count so can be checked every month, the beer is approximated and has a margin of error with it, if that creeps up then being on it's own it will be easier to spot.

You need a till that will separate things out, and you need to set it up. But it will catch anyone misbehaving and it will help you understand where the profit is being made, what your return on capital is and help you make the most out of your stock.

You need to strike a balance, between what is practical, how much control you need and how much information you need back.

So I might end up with

1011 Beer
1012 Wine
1013 Spirits
1014 Mixers
1021 Crisps/Snacks
1022 Fresh
1023 Frozen/Preserved

4011 Beer
4012 Wine
4013 Spirits
4014 Mixers
4021 Crisps/Snacks
4022 Food sales

5011 Beer
5012 Wine
5013 Spirits
5014 Mixers
5021 Crisps/Snacks
5022 Fresh
5023 Frozen/Preserved

Fresh kitchen food is not going to vary much month to month, I might just fix a value for that and only counted preserved food every few months, (once I had confirmed my estimate of preserved food value to be X% of sales value).

This does mean more work splitting invoices, but it does also mean more control, you will spot pretty quickly if food is being taken home from the kitchen, or if spirits are disappearing from the bar or free pints being served up.

It is hugely dependant on circumstances, but I hope you get the idea of using several different methods to estimate stock, I hope you have a view on how much error each part could introduce and why we separate out the potential errors.

The bottom line best check is a full count, these are strategies for filling in, between full counts. You need to do full counts to check your strategies are good and that drift is not happening. These might be done on a rolling basis doing different groups as per the nominal spits each month maybe only done as a full check once a year.

Bar/Pubs are notorious for stock going missing, I would keep a very close eye on it, estimates are fine, but you need to verify them because one month you will verify something and find stock missing and wonder how long has that been going on, how much did it cost.

brucedenney wrote:The terms I use for these are Wet and Dry sales.

Mate thanks for all the time you spent explaining. I got your point, and widened my understanding of this stuf.

Cheers Man!