When your company is dealing with goods, as in purchasing and selling them, something you will have in your accounts is the inventory. Now whilst one thing is their physical safety and keeping, the other thing is the accounting that’s surrounding them.

Goods, when bought, are recognized on your balance sheet when the risks and rewards have been transferred and as such, are recognized at cost. The accounting entries for inventory related transactions are as follows:

▪ When acquiring the goods (note there that the purchase price of the item consists of all the fees paid to the suppliers, including transportation, packaging etc.)

Db: Inventory
Cr: Payables to suppliers

▪ When selling the goods (since you sell units, the amount of units sold times their cost price is effectively the amount you charge to expenses)

Db: Cost of goods sold
Cr: Inventory

With this you have shown on your balance sheet that you’ve acquired the goods and you’ve also accounted for the sale. Something you have to do at a later date (or earlier than the sale, if the situation is like that), is paying your supplier for the goods. The entry for this is the following:

Db: Payables to suppliers
Cr: Bank accounts

And there are the inventory related most basic entries you’d need to use.