Startup questions for new business

[David Harrison]

On Tue, 09 Nov 2004 14:07:39 -0500, Robert Locke <rlocke at ralii.com> wrote:
> > On Tuesday 09 Nov 2004 06:06, tufkal wrote:
> >
> > >
> > > 3) I bought an item at a local store and resold it.  I entered the item as
> > > an expense from Asset:Checking->Expense:Inventory.   Then I got paid for
> > > the job I did, which was parts and labor.  $80 in labor and $99.99 in
> > > parts.  The expense of the part was $69.99.  How do I correctly recieve
> > > the money against the invoice, paying the Inventory account off and
> > > showing a profit?  Basically, how do I process inventory (no tracking
> > > needed), just the cost/profit.
 
> As I recall setting up CoA in my old accounting class, there is actually
> another expense category known as Cost of Goods Sold.
> 
> So, when you buy the inventory, yes, it is a transfer of Assets, reduce
> Asset:Checking and increase Asset:Inventory.
> 
> Of course, it may also use an Account Payable Liability account in the
> middle too.  When you receive the "inventory" you simply promise to pay
> some cash for the item.  So receipt of inventory is an increase to
> Asset:Inventory and an increase to Liability:Accounts Payable.  Then
> when you pay the bill you decrease Liability:Accounts Payable and
> decrease Asset:Checking.
> 
> Now you want to sell the item, so you receive income.  When I bill and
> deliver the product, say $80 in service and $100 in product where the
> product is in inventory valued at $70, I increase Asset:Accounts
> Receivable the total of the invoice $180, and increase Income:Service by
> $80 and increase Income:Product by $100.  Since I delivered the product
> I decrease Asset:Inventory by $70 and increase Expense:COGS by $70.
> When I am paid, I decrease Asset:Accounts Receivable by $180 and
> increase Asset:Checking by $180.
> 
> Of course, now I can get reports that show great profit in labor of $80,
> but I can also see the "profit" in product sold of $30, by taking
> Income:Product minus Expense:COGS, my overall profit will be $110 when
> taking all Income accounts minus all Expense accounts.....

This would be the correct way of accounting for it. The split between
labour and product is optional, though.

Dave
(IAAA) ;)