How do I create a Inventory account and control it?

[Nicholas Eckermann]

I have found this following thread and I guess I just need a simpler explanation on how to create this “hacked” inventory accounting.

I currently have 1 expense account with all the inventory purchasing I have done. How do I remove the COGS and cancel out the expense with the income to leave a profit somewhere? Very new to account sorry I guess I just don’t understand.


Nicholas

That is probably right, but where is the double entry for the cash?  You have 
one between Inventory and Expense, and one between Cash and ???

Using COGS, you leave Inventory alone.  You have Purchases and Sales.  What 
you buy is debited to Purchases (Expense) What you sell is credited to Sales 
(Income)  At balance date, you do a stocktake (manual or continuous; that is 
a policy issue.)

Then you create a Cost of Goods Sold account:

Opening inventory as per Inventory account (transferred, zeroes it.)
Add Purchases
Less Sales
Closing Inventory as per stocktake (creates your new balance in Inventory for 
your next accounting period.)

What remains is Gross Profit or Loss, and is transferred to P&L

That is what I learned as a lawyer, straight from the textbook.  You would 
have to ask an accountant how it is done in practice.

Doug.

On Friday 03 November 2006 07:35, Ivars Grinbergs wrote:
> 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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