1. Inventory

2. So far we have learnt that when a business sell stock, we put money into the cash account and take the same value out of the stock account. Dr Cr Cash accountStock account 1 Jan Stock £300 1 Jan Cash £300 However, this is not the case, how would the business ever make a profit? Stock is sold at a high price.

3. Purchase inventory on credit On 1 August 2012, goods costing £165 are bought on credit from D.Henry:  The inventory account is increased. (however we now call this a ‘purchase account’  There is an increase in the liability to D.Henry because the goods purchased have not been paid for yet. Dr CrPurchases a/c Aug 1 2012 D.Henry £165 Dr CrD.Henry a/c Aug 1 2012 Purchases £165

4. Purchase inventory for cash On 3 August 2012, goods costing £310 are bought using cash  The inventory account is increased. (however we now call this a ‘purchase account’  There is a decrease in the cash account Dr CrPurchases a/c Aug 3 2012 Cash £310 Dr CrCash a/c Aug 3 2012 Purchases £310

5. Sales of inventory on credit On 4 August 2012, goods were sold on credit for £375 to J.Lee  The debtor account is increased (J.Lee owes us money)  There is a decrease in the inventory, however we record this in the sales account Dr CrJ.Lee a/c Aug 4 2012 Sales £375 Dr CrSales a/c Aug 4 2012 J.Lee £375

6. Sales of inventory for cash On 4 August 2012, goods were sold for £55 cash  The cash account is increased  The inventory account is decreased, but again we record this in the sales account Dr CrCash a/c Aug 4 2012 Sales £55 Dr CrSales a/c Aug 4 2012 Cash £55

7. Returns ‘inwards’ On 5 August 2012, goods which had previously been sold to F.Lowe for £29 have been returned to our business.  There is an increase in stock, however we debit the ‘returns inwards account’.  There is a reduction in cash, as you give F.Lowe his money back. Dr Cr Returns Inwards a/c Aug 5 2012 F.Lowe £29 Dr CrF.Lowe a/c Aug5 2012 Returns Inwards £29

8. Returns ‘outwards’ On 6 August 2012, you returned goods, as you do not need them anymore. You sell them back to K.Howe for £96.  There is an decrease in the money we owe K.Howe. The liability account needs to be debited.  There is a reduction in inventory, which is recorded in the returns outwards account Dr Cr K.Howe a/c Aug 6 2012 returns outwards £96 Dr Cr Returns outwards a/c Aug6 2012 K/Howe £96

9. Inventory Worksheet

10. Homework Stick sheet in book