Setting up an Inventory Asset Account

[Ivars Grinbergs]

As far as I remember financial accounting principles, when you buy 
inventory you don't have expenses - it is just exchange of one asset 
into another. You will have esxpenses when you sell inventory.

For example:

trx #1a: buy inventory, pay to vendor
D inventory(asset) $100 (5 items @ $20 each)
C cash(asset) $100

trx #1b: pay for delivery to warehosue (costs that will be recorded in 
expenses, when sale will happen)
D inventory(asset) $10
C cash(asset) $10

trx#2: sell inventory (issue bill to customer)
D acc/rec(asset) $150 (3 items @ $50 each)
C sales(income) $150

trx#3: record cost of goods sold, for instance, when goods leave warehouse
D cogs(expenses) $66 (3 items @ $22 each)
C inventory(asset) $66  (there are still 2 items at 22 each in the 
warehouse)

trx#4: customer pays bill
D bank account(asset/bank) $150
C acc/rec(asset) $150

wbr,
Ivars


Erik Wickstrom wrote:
> Hi all,
>
> I'm working on setting up my business' books in gnucash - so far it's been a
> smooth process :-)  I do have an accounting question though.  My
> understanding is that from an accounting standpoint inventory is considered
> an asset.
>
> I've created 2 accounts, Inventory Asset (under current assets) and
> Inventory Expense.  If I purchase $1,000 in inventory, I naturally have a
> $1k inventory expense, and I've exchanged $1000 cash for $1000 in goods.
> How do I represent this transaction in gnucash?  Right now I have a $1000
> expense, and a negative balance of $-1000 in my inventory asset account.
>
> How do I make the $1000 come out of my checking account, have my expense
> paid, and have the inventory asset increase?
>
> Thanks for your help!
> Erik
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