Startup questions for new business
David Harrison
davidharrisoncga at gmail.com
Tue Nov 9 22:52:04 EST 2004
On Tue, 9 Nov 2004 19:05:52 -0800, Walt Pennington
<wpennington at pennfirm.com> wrote:
>
>
> 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?
> >
> Inventory does not use income/expese... Inventory is an Asset. When
> you buy the inventory it goes from Checking (or A/P) to
> Asset:Inventory. When you resell the inventory you reduce the
> inventory amount; if you sell for more than you buy then you've got
> income from the gain.
>
> Initial purchase of parts
>
> Asset: Parts & Inventory 69.99
> Asset: Cash (Bank Account) 69.99
>
> Cash payment for parts and service
>
> Asset: Cash (Bank Account) 179.99
> Asset: Parts & Inventory 69.99
> Income 110.00
>
> Walt
Close, change the second entry to:
Asset: Cash (Bank Account) 179.99
Expense: Cost of Goods sold 69.99
Asset: Parts & Inventory 69.99
Revenue: Income 179.99
I know the end result (net income) is the same, but when you complete
your corporate income tax forms and/or sales tax forms, you need to
report your gross revenues not net (at least here in Canada). This
method makes it that much easier.
Also, this allows you to keep track of your gross profit (sales less
cost of goods sold) as a percentage of sales. This ratio is used
alot.
Dave
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