[GNC] Double entry accounting (A/R Sales Revenue, COGS Inventory, Sales Returns And Allowances A/R)

[Adrien Monteleone]

Jason,

Not real sure if your question is asking for more than basic accounting entries, but you can find plenty of online examples and texts showing the proper debits and credits. Focus your search on manufacturing examples. You may not need *all* of those related entries, but you will definitely use some of them. Also, talk to a local CPA to make sure you are setting up your accounts properly for your jurisdiction. Initial consultations are usually not terribly expensive and are well worth their price when weighed against costly mistakes.

For GnuCash, first you need to read the Help Manual and the Tutorial & Concepts Guide. Those might be available in the Help menu, but are always available on the GnuCash website.

You’ll want to pay particular attention to the Business Features.

Set up your Vendors and Customers.

Create Bills from your Vendors for the inventory purchase on account (the A/P purchase from Cosmetic LLC). Optionally do the same for the two cash purchases. (if you use the business features for these, reporting will be more sane later, but you *could* simply enter them as regular transactions. I’d recommend using the business features regardless of payment method or timeframe for all regular inventory/supplies/service vendors) For cash purchases entered in the Business Features, simply pay those bills immediately after posting.

Your line items on the bills should all post to something like Assets:Current Assets:Inventory:Raw Materials. You could break down ‘Raw Materials’ with sub accounts for the types of materials if you have some left over after a production run and need to track these separately. If you always use *all* raw materials for each production run as they are purchased or you never need to know that some of your remaining materials are tubing versus packaging et cetera, then you don’t need the sub accounts. (note, it is easier to combine accounts later than to separate transactions into their own accounts - that’s from experience doing both many, many, many times. If you record detail now, it is there if you need it. If you don’t, you might not be able to recreate it later.) Please also note that GnuCash does not have features to track individual inventory items. For that you’ll need a separate inventory management program.

----------

*side note - I see you specified ‘Capital’ as paying for inventory purchases from ‘Packaging LLC’ and ’Tubes LLC’ rather than ‘cash’ or ‘checking'. What you should have here is an initial entry upon paying in that capital (from yourself or an investor) balanced between Cash/Checking and an Equity account. Depending on what type of business entity this is (sole proprietor, partnership, etc.) you may need to set up your equity accounts differently. The simplest example would be:

Dr. Assets:Current Assets:Cash (or Checking as relevant)
Cr. Equity:Paid-in-Capital

Let’s assume you paid in $500 as opening capital, the result of the above bills and this equity transaction are the following balances:

Assets:Current Assets:Cash					$160
Assets:Current Assets:Inventory:Raw Materials			$850
Equity:Paid-in-Captial							$500
Liabilities:A/P								$510


-now, back to the other entries
----------

Create a manual transaction as needed for Work In Progress and/or Completed Goods—e.g.,

as the product is being made:

Dr. Assets:Current Assets:Inventory:Work-in-Progress		$850
Cr. Assets:Current Assets:Inventory:Raw Materials			$850


after production is complete:

Dr. Assets:Inventory:Completed Goods				$850
Cr. Assets:Inventory:Work-in-Progress					$850


or, if production is a one-day short term affair, skip the Work-in-Progress steps:

Dr. Assets:Current Assets:Inventory:Completed Goods		$850
Cr. Assets:Current Assets:Inventory:Raw Materials			$850

You’ve now shifted your Raw Materials asset to your Completed Goods asset.



When you sell your products, create Invoices to your Customers for the sale amount. (again, as a cash sale, you could bypass the business features, but your reporting could get cumbersome later) Simply ‘pay’ the invoice right after posting it. Your line items on your invoice should post to Revenue:Sales (or some similar account, you may eventually have other forms of revenue, and may desire to have sub accounts of Sales to track their major type)

GnuCash does not understand that your line items constitute Completed Goods inventory that is going to be sold at a profit, nor how to calculate the COGS, so you’ll have to do this as a separate manual transaction

Dr. Expenses:Cost Of Goods Sold					$ 850
Cr. Assets:Current Assets:Inventory:Completed Goods			$ 850

If you really want to do a manual transaction, you can do it all in one:

Dr. Assets:Current Assets:Cash					$1700
Dr. Expenses:Cost Of Goods Sold					$ 850
Cr. Assets:Current Assets:Inventory:Completed Goods			$ 850
Cr. Revenue:Sales							$1700

(if receiving a check, you could use an Undeposited Funds account as an intermediary to your checking/cash account)


This results in the following balances:

Assets:Current Assets:Cash					$1860
Assets:Current Assets:Inventory:Raw Materials			$   0
Assets:Current Assets:Inventory:Work-in-Progress		$   0
Assets:Current Assets:Inventory:Completed Goods			$   0
Expenses:Cost of Goods Sold					$ 850
Equity:Paid-in-Capital							$ 500
Liabilities:A/P								$ 510
Revenue:Sales								$1700



Hope that helps.

Regards,
Adrien

> On Nov 15, 2018, at 10:18 AM, jason <jasonong713 at gmail.com> wrote:
> 
> Hi, my name is Jason. ;) quite happy to be able to register with a real name.
> 
> My business is about creating a product and selling it to a customer.
> 
> 1. A/P Purchases from Cosmetic LLC (Green 170 pcs) to Inventory = $510
> 2. Capital; Purchases from Packaging LCC (Matte 170 pcs) to Inventory = $170
> 3. Capital; Purchases from Tubes LLC (Matte 170 pcs) to Inventory = $170
> 
> The three purchases, turned into one, Green Edition 170 pcs
> 
> 4. Cash; Sales to AEON Mall LLC (Green Edition 170 pcs) for $10 = $1700 USD
> Inventory decrease to $0
> COGS increase to $850
> Cash increase to $1700
> Sales Revenue to $1700
> 
> Can you help me to do that in GNUCash?
> 
> 
> 
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