accounting for "sold" inventory

[Mike or Penny Novack]

David Cousens wrote:

>Hi Jay 
>
> 
>
>Maf is right.
>
> 
>
>You normally create an expense account Cost of Goods Sold (CoGS) and you
>have an Asset  account Inventory.  When you make a sale of an item for $50
>whose cost is $10, your Accounts Receivable AR is debited by $50, your Sales
>Income account is credited by $40 and the CoGS   Expense account is credited
>by the "cost"  of the item $10, i.e.  a split in GnuCash terms.
>
I'm going to add something to this. While "cost of goods sold" may be 
thought of as an expense this is one of those cases where perhaps 
accounts are best thought of in terms of debits and credits. Thus ..........

Inventory (parent, an account of type asset)
     Goods inventory (child, normal balance debit)
     Cost of goods sold (child, normal balance credit)

As described above, when you sell a widget, AR is debited 50; Sales 
income credited $40, and Cost of goods sold credited $10.
When you have sold all the widgets (the original goods inventory) the 
cost of goods sold will be the same amount on the opposite side of the 
ledger and the total remaining for Inventory $0 (since it's two children 
cancel each other out).

Michael