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. Cash account Cr Stock account Cr Dr Dr 1 Jan Cash £300 1 Jan Stock £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. • Purchases a/c Cr • D.Henry a/c Cr Dr Dr Aug 1 2012 Purchases £165 Aug 1 2012 D.Henry £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 • Purchases a/c Cr • Cash a/c Cr Dr Dr Aug 3 2012 Purchases £310 Aug 3 2012 Cash £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 • J.Lee a/c Cr • Sales a/c Cr Dr Dr Aug 4 2012 J.Lee £375 Aug 4 2012 Sales £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 • Cash a/c Cr • Sales a/c Cr Dr Dr Aug 4 2012 Cash £55 Aug 4 2012 Sales £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. • Returns Inwards a/c Cr • F.Lowe a/c Cr Dr Dr Aug5 2012 Returns Inwards £29 Aug 5 2012 F.Lowe £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 • K.Howe a/c Cr • Returns outwards a/c Cr Dr Dr Aug6 2012 K/Howe £96 Aug 6 2012 returns outwards £96
Homework Stick sheet in book