Startup questions for new business

[David Harrison]

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