Reporting question

[Mike or Penny Novack]

>
>Thanks for your response. At present, I record hardware I order in 
>Expenses:Computer Hardware and sales of said hardware (which is ordered 
>as required as I don't hold inventory) to clients under a similar Income 
>account.
>
>If I understand what you are suggesting, I would record hardware 
>acquisitions under an Asset account instead of Expenses:Computer 
>Hardware. When I pay the vendor, that also comes out of the Asset 
>account tree (Chequing Account in this case). How would the sale to the 
>client reflect back to this? The split on sales to clients is the 
>Assets:Accounts Receivable account. Would doing what you suggest not 
>mess that up?
>
>Sorry if I appear dense - it's because it's true!
>
>  
>
Des,

    The costs of acquiring inventory are NOT an expense. In effect your 
business is first investing in inventory and THEN recording profit (if 
any) when that inventory is sold as income. Cost for any inventory left 
over becomes and expense only when disposed of at a loss.

    GnuCash (or any other accounting system) cannot teach you 
"Accounting 101". You still have to learn HOW to do accounting and then 
the fact that the software automates much of the work of transcribing 
data while keeping track of possible imbalance errors makes the 
bookkeeping much simpler than if you were doing it the old fashioned way 
with pen and ink on paper.

    Get yourself a book "accounting for the small business" or some 
such. You will have much more to learn than simply THIS situation. But 
we'll describe of for you.

When you buy the inventory from some vendor
    The net transaction recording this is a decrease in the current 
asset "checking" and a corresponding increase in the asset "inventory" 
(which might well have several sub accounts). The actual transaction 
might be much more complex. For example, you buy from the vendor under 
terms like "30 days net" in which case when you buy the inventory that's 
an increase to inventory and a liability account owed that vendor. Then 
when you send that vendor a check against what is owed on that account, 
a decrease in checking and the liability (wording sounds weird, but 
"asset" accounts and "liability" accounts are on opposite sides of the 
ledger)

When you sell some product.
    Let's assume the sale was at a profit. Then that's a split 
transaction with the gain in checking split between the cost of that 
item of inventory and an income account "profit from sale of goods". 
Again the real situation might be much more complex in some ways and 
simpler in others. For example, might well be first recording gains in 
checking against "sales" and then daily or weekly or whatever makes 
sense splitting sales between inventory and income. If selling a small 
volume of individually expensive inventory the first method but if a 
large volume of individually cheap items the second (your inventory 
might be 5000 widgets @ $1 per and you sell between 20 and 100 per day 
at prices $1.50 or 4 for $5 you wouldn't want to individually record 
them! Just the results for each day in terms of what was taken in and 
the cost of so many widgets sold).

Michael