Stock Bookkeeping

How to Post Sales & Stocks in Bookkeeping

Businesses operate by selling goods, services or both. A business that only sells services does not have account for stock, but businesses that sell goods like a shop (either bought in or manufactured by itself) must keep stock accounts and should carry out periodic stock-takes.

 

Stock Accounts

  • Stock Account

    • The cost of goods purchased or manufactured is debited to this account, which is of course an asset account. This cost is transferred out when the goods are sold, scrapped or otherwise disposed of.
  • Returns Inwards Account

    •  This is for the cost of goods returned to the business by its customers. The a propitiate sum is debited and increases the value of the stock held by the business.
  • Returns Outwards Account

    • This is for the cost of goods returned by the business to its suppliers. The appropriate sum is credited
      and reduces the value of the stock held by the business.

There must be at least one stock account (possibly incorporating returns inwards and returns outwards) but many businesses have a number of them, perhaps even hundreds or thousands. This is to identify accurately the different categories of finished goods, and perhaps of raw materials, components and work in progress. Keeping different accounts may assist in stock control, stocktaking and the efficient management of the business. Some businesses have a stock purchases account for stock acquired and a stock sales account for stock sold. If this is done, the value of stock held by the business is the difference between the two, after adding the opening balance of course.

Shown below are illustrations of the double entry postings for different types of transactions involving stock.

 

Purchase of stock for cash

Goods costing £8,000 are purchased on 4 April. Stock (the asset account) is debited and cash (which is being diminished) is credited.

Stock Account    8000 DB
Cash Account                            8000CR

 

Purchase of stock on credit

 

Goods costing £5,000 are purchased on 6 April on credit from Dennis Clinton Ltd. Stock (the asset account) is debited and Dennis Clinton Ltd (a liability account) is credited. Dennis Clinton Ltd is a creditor because money is owed to it.

Stock Account   5000 DB
Payable Accounts (Dennis Clinton)     5000 CR

 

Goods returned inwards for credit

 

Goods with a cost value of £1,000 that had been supplied to Hannah Smith Ltd are returned for credit on 7 April. Stock (the asset account) is debited and Hannah Smith Ltd is credited.
This money is owing to Hannah Smith Ltd and it must be paid to her, or it may of course reduce the amount that Hannah Smith Ltd owes.

Returns Inwards Account     1000  DB
Payable Accounts (Hannah Smith Ltd)    1000 CR

 

Goods returned outwards for credit

 

Goods that had been purchased for £2,000 are returned by the business to Cilia and Green (the supplier) on 8 April.
Stock (the asset account) is credited and Cilia and Green is debited.

Payable Accounts(Cilia and Green): 2000 DB

Returns Outwards Account: 2000 CR

 

Real Journal Entry in Accounting software

We use iGreen accounting to practice above transaction in double entry form

Example of Sales Bookkeeping and returns

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