When you purchase an item, you must make an entry to increase (debit) the value of your inventory, and decrease (credit) your cash. When you sell an item, you increase your sales (credit) and increase your cash (debit). You also decrease your inventory (credit) and increase your expense (debit).
| Example 1: | You buy one case of oil filters and receive an invoice for $24.00. You enter the invoice and distribute the “expense” to an asset account for inventory (1201). You also reduce your cash account (1011). |
| Debit | Credit | ||
| 1201 | Inventory | 24.00 | |
| 1011 | Cash | 24.00 |
| Example 2: | You sell two filters today at $3.00 each. Your cost was $2.00 each. |
| Debit | Credit | |
| Sales | 6.00 | |
| Cash | 6.00 | |
| Cost of Goods | 4.00 | |
| Inventory | 4.00 |
There are many subtleties in inventory accounting. If you need additional help, call your accountant.
