Stocks and long-term contracts

Accounting for stock involves the determination of both the cost of goods sold during the period and the amount that should be carried forward in the balance sheet as stock to be matched against future revenues. This is because the determination of profit for an accounting period requires the matching of costs with related revenues. The cost of unsold or unconsumed stocks will have been incurred in the expectation of future revenue, and when this will only arise in future periods it is appropriate to carry forward this cost to be matched with the revenue when it arises; the applicable concept is the matching of cost and revenue in the year in which the revenue arises rather than in the year in which the cost is incurred.