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Free Accounting Software Forum - Accounting for Stock

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When I'm setting up the accounts, what do I use for Stock purchased? Is it an Asset? Is it Equity? Not sure where to put it.
You may need some accounting advice rather than technical support. We provide technical support for free, and provide accounting advice for very reasonable fees.

However, a simple, generic answer that may help you is:

Stock on hand / Inventory is an asset.
Cost of goods sold is an expense.

And "stock purchased" is not an account at all. You can delete it! If you need to know stock purchased then use this equation:

Stock purchased = Cost of goods sold + Closing inventory - Opening inventory

So why is stock purchased not an account? Well, consider this: Some of the "stock purchased" will be sold, so that part is an expense. Some of the "stock purchased" will still be held and that is an asset. You cannot have one account that is part asset and part expense.

Note there are different ways to account for inventory and your taxation obligations will vary depending on your business situation, so you should get some advice that takes into account your specific circumstances.
Hi Glen,
Based on what you have answered for Ashley it sounds to me that we do not enter stock purchased under any category??
I have been entering purchases as Cash Payment under the inventory account. Is this wrong?
Hi Jeff,

It's not wrong. At the time the stock is purchased it is inventory. However, when you sell it you have to transfer it to cost of goods sold.

Some people with low levels of stock just expense it when purchased to cost of goods sold and at the end of year do a stocktake of how much is on hand and record that as inventory.

The point I was making is that there is no such account as "Stock purchased" it should just be Stock (aka Inventory).


in regards to stock , what are you supposed to do with "inventory" that needs to be written off, through spoilage, damage out of date(death in my case of livestock)what is the best way to record that?
Hi Jason,

For writing off stock you would just post a journal to Debit an account like "inventory obsolescence" and credit inventory. A debit is a positive number in the General Journal page and a credit is a negative. You then need to reconcile the inventory account.


Update: There are quite a few new inventory videos and Free Accounting Software now supports First In First Out (FIFO) inventory.

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