Buying inventory items, i.e. goods to be resold, materials to be produced and manufactored into sellable goods is something businesses do every day. They buy what’s needed to keep the business running and keep track on stock in hand. The accounting entries one normally does for when acquiring inventory items is as follows (note here that we have ignored any tax effects):
| # | Debit-Credit | Account name | Amount | ||||
| 1 | Debit | Inventory | 1,000 | ||||
| Credit | Payable to suppliers | 1,000 | |||||
Not so regularly it may happen that we acquire inventories and pay on spot. It’s important to show in this case the account wihtin cash and cash equivalents grouping we paid the amount from:
| # | Debit-Credit | Account name | Amount | ||||
| 1 | Debit | Inventory | 1,000 | ||||
| Credit | Cash account | 1,000 | |||||
Paying for inventory is generating for the company a cash outflow and what you’re getting out of it, is something to be sold at a later date. It’s important to note that if you’re paying say 100 for one item, you ought to be getting more for it when you sell it to cover for your expenses and earn profits. Thus it’s important to keep track on cost per item within your inventory ledger as well.