Question on billing procedure

Benjamin Carlyle benjamincarlyle at
Fri May 21 08:06:08 EDT 2004


On Thu, 2004-05-20 at 15:31, Des Dougan wrote:
> I recently did some business with a computer reseller friend, where I
> acquired two disk drives, one for myself and the second for a client.
> I've entered the one I bought as an Expense:Computer Hardware with the
> liability under Accounts Payable. When I entered the bill from this
> vendor, I put the cost of both devices in the record, which has put the
> cost of the one I bought into AP twice, which is obviously wrong (the
> drive sold to the client was entered under Income:Sales:Hardware Sales,
> linked to Accounts Receivable).

Ok, I haven't used gnucash for a while so I'll just be quoting straight
accounting theory in this email.

Say that you paid $100 each for the drives. When you bought the two hard
drives, you created the following transaction:

Inventory $100DR
Expense:Computer Hardware $100DR
Payable (your friend) $200CR

If you sold the second drive for $120, you would see the following
Income:Sales:Hardware Sales $120CR
Receivable (your customer) $120DR
Cost of sales $100DR
Inventory $100CR

If you wanted you could combine the two transactions as follows:
Income:Sales:Hardware Sales $120CR
Receivable (your customer) $120DR
Cost of sales $100DR
Expenses:Computer Hardware $100DR
Payable (your friend) $200CR

Now for the explanation. Before I start, I'm not an accountant.
Accounting is just my sick hobby :)

At the end of the year you'd like to show your net profit, in this case 
$20. It's also good to be able to keep track of your sales and the costs
associated with those sales. In the above example you spend $100 to make
$120. That's it. See, it's not complicated :)

It gets a little more complicated if you split the purchase and the
sale. You have to introduce that Inventory account, which tracks the
cost of everything you're currently intending to sell. You should also
include an freight or other expenses directly related to the sale in
this total and add it to the cost of sales. The reason for including the
inventory account at all instead of just listing the costs of sales as
you incur them is that you want to record the cost of a sale at the same
time as you record the sale itself. It's called the matching principle.
Your graphs should show that $120 income and the $100 expense occurring
on the same day.


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