Jeff,
Buying inventory is not an expense transaction. It’s an asset acquisition. (or
rather, shift)
See my other reply to the original question.
A purchase of inventory looks like this:
Dr. Assets:Current Assets:Inventory $100
Cr. Assets:Current Assets:Cash $100
(or Bank instead of Cash as the case may be)
This transaction does not affect Total Assets on your balance sheet, it just
moves them from Cash/Bank to Inventory, both of which are ‘current’ because
they are expected to be liquid within the reporting period. (likely one year)
So you’d go from this:
Assets:Current
Cash $100
Inventory $ 0
====
Total Assets $100
Total Liabilities $ 0
Equity
Paid-in Capital $100
Retained Earnings $ 0
====
Total Liabilities & Equity $100
To this:
Assets:Current
Cash $ 0
Inventory $100
====
Total Assets $100
Total Liabilities $ 0
Equity
Paid-in Capital $100
Retained Earnings $ 0
====
Total Liabilities & Equity $100
The P&L is not affected at all. You have made neither a profit or realized any
loss as of yet.
Selling inventory looks like this:
Dr. Assets:Current Assets:Cash $110
Dr. Expenses:Cost of Goods Sold $ 50
Cr. Assets:Current Assets:Inventory $ 50
Cr. Liability:Sales Tax Payable $ 10
Cr. Income:Sales $100
Now your P&L looks like this:
Income:Sales $100
Cost of Goods Sold(-) $ 50
Gross Margin $ 50
====
Operating Expenses(-) $ 0
====
Net Profit $ 50
(Net profit flows to Equity:Retained Earnings)
Now, the Balance Sheet looks like this:
Assets:Current
Cash $110
Inventory $ 50
====
Total Assets $160
Liabilities:Current
Sales Tax Payable $ 10
====
Total Liabilities $ 10
Equity
Paid-in Capital $100
Retained Earnings $ 50
====
Total Liabilities & Equity $160
Regards,
Adrien
> On Feb 11, 2018, at 8:49 AM, Jeff Abrahamson <j...@p27.eu> wrote:
>
> On 11/02/18 15:03, Robert Heller wrote:
>>
>> I expect that the OP wants to have an account that represents his stock of
>> vegetables (or whatever). He can actually do that. What you do is think of
>> the
>> vegetables as a kind of currency or comodity or inventory, that is the
>> vegetables themselves are an asset (Assets:vegetables). Then when you sell
>> vegetables the vegetable account is redued and when you buy vegetables the
>> vegetable account is increased. This happens by transactions which transfer
>> "money" from the vegetable account to a bank account (income when you sell
>> vegetables) and when you transfer money from a bank account to the vegetable
>> account (an expense when you buy vegetables). *I* do this which my inventory
>> of thumb drives. GnuCash does not have "inventory" accounts or any way of
>> dealing with inventory as such -- the two "features GnuCash lacks are payroll
>> and inventory management features. Payroll processing is a huge process (not
>> trivial to implement) but inventory management can be "faked" by considering
>> inventory as if it were a currency of sorts, by just having an account with a
>> balance representing the value of the inventory, which then goes up or down
>> as
>> inventory is bought or sold. Since he is a farm, I expect he is growing
>> vegetables, so things are slightly more tricky. Maybe it might be useful to
>> think of his farm like Bitcoin mining -- maybe someone with that sort of
>> experience can describe how to represent a Bitcoin currency and how to
>> represent the mining process -- one would do the same with growing vegetables
>> somehow.
>
> That is enticing, and I've contemplated doing the same. But, unlike a
> currency, which is a durable form of value that (except for currency
> traders) does not constitute P&L, the vegetables also should show up in
> income and expense accounts. I'd really love to have our inventory show
> up in our accounting system, but it's even more important to have our
> income and expenses show up, and it seems to be either/or.
>
> buy inventory bank [cx] -> expense [dx]
> (add value)
> sell inventory income [cx] -> bank [dx]
>
> or faking it with currencies
>
> buy inventory bank [cx] -> inventory [dx]
> (add value)
> sell inventory inventory [cx] -> bank [dx]
>
> Except in this second case, only my balance sheet changes, not my P&L.
>
> Did I miss something?
>
> (This is moving away from OP, but a common theme here and one that I'd
> like to understand.)
>
> --
>
> Jeff Abrahamson
> +33 6 24 40 01 57
> +44 7920 594 255
>
> http://p27.eu/jeff/
>
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