Accounting for inventory/stock held

[John Ralls]

> On Mar 25, 2017, at 2:13 PM, Maf. King <maf at chilwell.net> wrote:
> 
> On Saturday, 25 March 2017 19:48:48 GMT Chris Serella wrote:
>> I'm wondering if I need to account for my inventory/stock pre and post
>> manufacture?
>> 
>> I buy in a bunch of ingredients from various suppliers which I put into
>> expenses:supplies (Should this be an asset?)
>> 
>> once manufacturing is complete I now have stock to sell: Do I complete a
>> transfer of the cost price to Assets or do they remain in Expenses?
> 
> Hi Chris,
> 
> GC doens't track inventory in the sense of numbers of widgets and sprockets in 
> stock.  I think you need to learn about "Cost of Goods Sold" or COGS accounts.  
> I don't know much about them, beyond it is how one accounts for manufacturing 
> processes...


Maf is right about COGS, but there's a bit more to it.

Yes, inventories are assets. In the simplest form:

Buy inputs:
Assets: Money                                        XXX
Assets:Inventory:Input              XXX

Manufacture products
Assets:Inventory:Input                          XXX
Expense:Labor                                      YYY
Assets:Inventory:Product          ZZZ

Sell product:
Assets:Money                           AAA
Income:Sales                                        AAA
Assets:Inventory:Product                      ZZZ
Expenses:COGS                     ZZZ

And when you close out the books AAA-ZZZ goes to Retained Earnings.

There's generally a lot more to it than that and you'd be wise to at least study up on cost accounting. It's a really important tool for managing a manufacturing business.

Regards,
John Ralls