Goods Distributed as Free Sample Journal Entry is Debit the Advertisement(Free Sample) Account and To Purchase Account Credit. When a company distributes goods as free samples, it is often considered an advertising or promotional expense. These goods are taken from inventory and given away to promote the business. Below is an example scenario and the necessary journal entry for recording goods distributed as free samples.
Example Scenario
Let’s assume Company A distributes goods worth ₹5,000 as free samples on 15-07-2024.
Journal Entry
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-07-2024 | Advertisement (Free Sample) | 5,000 | Recording goods distributed as free samples(Expense) | |
| 15-07-2024 | To Purchases | 5,000 | Goods taken from inventory for free samples |
Explanation:
- Advertisement (Free Sample) Account Debit: Records the expense related to distributing the goods as free samples. This account can be considered part of the advertising or promotional expense.
- To Purchases Account Credit: Reflects the reduction in inventory by crediting the purchases account.
Conclusion
Recording goods that are distributed as free samples involves recognizing the promotional expense and reducing inventory i.e purchase accordingly. Proper documentation of these entries ensures accurate financial reporting and helps track promotional activities and their costs.