Accounting for inventory/stock held

[Maf. King]

On Saturday, 25 March 2017 22:46:10 GMT Chris Serella wrote:
> > 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...
> 
> 
> Yeah I understand as much (widgets and sprockets).
> 
> IF i do need to increase assets then i believe it would be, cost 
> decrease of expenses:ingredients, expenses:packaging and increase 
> assets:stock, but as no actual money changes hands Im not sure whether I 
> should even be doing it that way, somebody said on another post "follow 
> the money". On that principle, regardless of the determined sale cost, 
> the only transaction then would be to add expenses for manufacturing 
> costs. Maybe that's the way to do it and not worry about assets as a 
> stock held.
> 
> -- 
> Kind Regards,
> 
> Chris
> 

Hi Chris.

Really, read up on COGS.  A stock of Widgets that you are going to incorporate 
into some product and sell are most certainly an asset of the business.  

If you are following the money, then Bank:Current -> Assets:Widgets is what 
happens.  When you make the product, Assets:Widgest -> Assets:Gizmos

When you sell a Gizmo, then (and this is what I don't know 'cos I don't do it) 
somehow, you decrease Assets, Increase Income, but also increase Expenses:COGS 
(I think)  which is how you derive the figure for profit.

It may seem counter-intuitive, but when you buy the Widgets, that isn't an 
expense.  You are turning one asset (cash) into another asset (physical 
stock).  It is no more an expense than stashing £100 into a savings 
account....

HTH,
Maf.