Inventory

Inventory
So far we have learnt that when a business sell stock, we put money into
the cash account and take the same value out of the stock account.

Dr Cash account Cr Dr Stock account Cr

1 Jan Stock 1 Jan Cash

300 300

However, this is not the case, how would the business ever make a
profit? Stock is sold at a high price.
 Purchase inventory on credit
On 1 August 2012, goods costing 165 are bought on credit from D.Henry:
The inventory account is increased. (however we now call this a
purchase account
There is an increase in the liability to D.Henry because the
goods purchased have not been paid for yet.

Dr Purchases a/c Cr Dr D.Henry a/c Cr

Aug 1 2012 D.Henry Aug 1 2012 Purchases

165 165
 Purchase inventory for cash
On 3 August 2012, goods costing 310 are bought using cash
The inventory account is increased. (however we now call this a
purchase account
There is a decrease in the cash account

Dr Purchases a/c Cr Dr Cash a/c Cr

Aug 3 2012 Cash Aug 3 2012 Purchases

310 310
 Sales of inventory on credit
On 4 August 2012, goods were sold on credit for 375 to J.Lee
The debtor account is increased (J.Lee owes us money)
There is a decrease in the inventory, however we record
this in the sales account

Dr J.Lee a/c Cr Dr Sales a/c Cr

Aug 4 2012 Sales Aug 4 2012 J.Lee

375 375
 Sales of inventory for cash
On 4 August 2012, goods were sold for 55 cash
The cash account is increased
The inventory account is decreased, but again we record
this in the sales account

Dr Cash a/c Cr Dr Sales a/c Cr

Aug 4 2012 Sales Aug 4 2012 Cash 55

55
 Returns inwards
On 5 August 2012, goods which had previously been sold to F.Lowe
for 29 have been returned to our business.
There is an increase in stock, however we debit the returns
inwards account.
There is a reduction in cash, as you give F.Lowe his money
back.

Dr Returns Inwards a/c Cr Dr F.Lowe a/c Cr

Aug 5 2012 F.Lowe Aug5 2012 Returns Inwards

29 29
 Returns outwards
On 6 August 2012, you returned goods, as you do not need them
anymore. You sell them back to K.Howe for 96.
There is an decrease in the money we owe K.Howe. The
liability account needs to be debited.
There is a reduction in inventory, which is recorded in the
returns outwards account

Dr K.Howe a/c Cr Dr Returns outwards a/c Cr

Aug 6 2012 Aug6 2012 K/Howe 96

returns outwards
96
Inventory Worksheet
 Homework
Stick sheet in book