Here is detailed wise Inventory Accounting Journal Entries. Inventory accounting involves recording the purchase, sale, and valuation of inventory. Proper inventory accounting ensures that the cost of goods sold (COGS) and the ending inventory value are accurately reflected in the financial statements. Here, we’ll cover the basic journal entries related to inventory purchases, sales, and adjustments.
Inventory Purchase Journal Entry
When a business purchases inventory, the following accounts are affected:
- Inventory Account: This asset account records the cost of the inventory purchased.
- Cash/Bank or Accounts Payable Account: This account records the payment made or liability incurred for the inventory.
Journal Entry for Inventory Purchase:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Inventory | Amount | Record the purchase of inventory | |
| DD-MM-YYYY | To Cash/Bank or Accounts Payable | Amount | Payment made or liability incurred |
Example:
On 15-07-2023, a business purchases inventory worth ₹100,000 on credit.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-07-2023 | Inventory | 100,000 | Purchase of inventory | |
| 15-07-2023 | To Accounts Payable | 100,000 | Liability incurred |
Inventory Sale Journal Entry
When inventory is sold, two entries are needed: one to record the revenue and another to record the cost of goods sold (COGS).
Journal Entry for Inventory Sale (Revenue):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Cash/Bank or Accounts Receivable | Amount | Record the sale revenue | |
| DD-MM-YYYY | To Sales Revenue | Amount | Revenue from inventory sales |
Example:
On 20-07-2023, a business sells inventory worth ₹150,000 on credit.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 20-07-2023 | Accounts Receivable | 150,000 | Revenue from inventory sales | |
| 20-07-2023 | To Sales Revenue | 150,000 | Record the sale revenue |
Journal Entry for Inventory Sale (COGS):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Cost of Goods Sold (COGS) | Amount | Record the cost of goods sold | |
| DD-MM-YYYY | To Inventory | Amount | Reduce the inventory |
Example:
Assuming the cost of the inventory sold on 20-07-2023 was ₹80,000.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 20-07-2023 | Cost of Goods Sold (COGS) | 80,000 | Record the cost of goods sold | |
| 20-07-2023 | To Inventory | 80,000 | Reduce the inventory |
Inventory Adjustment Journal Entry
Inventory adjustments may be required for various reasons, such as shrinkage, damage, or obsolescence.
Journal Entry for Inventory Adjustment:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Inventory Adjustment Expense | Amount | Record the inventory adjustment | |
| DD-MM-YYYY | To Inventory | Amount | Reduce the inventory |
Example:
On 31-07-2023, a business identifies damaged inventory worth ₹10,000.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 31-07-2023 | Inventory Adjustment Expense | 10,000 | Record the inventory adjustment | |
| 31-07-2023 | To Inventory | 10,000 | Reduce the inventory |
Conclusion
Accurate inventory accounting is essential for maintaining reliable financial records and ensuring the financial statements reflect the true financial position of the business. By understanding how to create journal entries for inventory purchases, sales, and adjustments, businesses can manage their inventory and costs effectively.