Entries – you’re buying goods

When buying goods there are two types of goods you can buy – ones you use yourself in your business or the ones you sell to your customers. Since first are treated as buying services really, we’re not going to focus on those in this post, but the second one. 

Buying goods that you’re planning to sell at a further date means you’re essentially buying inventory or “goods held for sale”. As such, you ought to reflect it as it is on your financial statements as well. Let’s pretend you bought 1,000 items for 10 euro each, resulting in 10,000-euro payable, your initial accounting entry would be as follows (completely disregarding the aspects of taxation since it’s hugely country specific and we advise you consult your local legislation for that):

Db Inventory 10,000

Cr Accounts payable 10,000

In your inventory ledger you would enter that you bought 1,000 items with a unit price of 10 euro. As we’ve pointed out before, the inventory ledger should include item based information and not just the total amounts. You’re selling items, not total sum.

With this entry on your balance sheet you’ve increased your assets (with showing you bought some items into your inventory) and also showed that you still need to pay for the purchase.