How to post sales & Stocks 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 by perfect stocks bookkeeping and should carry out periodic stock-takes.

The following is a simplified summary of the accounts associated with stock:

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 appropriate 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.

Examples for Stocks bookkeeping

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.

Purchase of stock on credit

Goods costing £5,000 are purchased on 6 April on credit from Dennis Clinton Ltd.

Journal entry:

Stock (the asset account) 5000 debited

                   Dennis Clinton Ltd (a liability account)      5000 credited.

Note: Dennis Clinton Ltd is a creditor because money is owed to it.

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.

Journal entry:

Stock (the asset account)  1000 debited

                            Hannah Smith Ltd    1000 credited

Note: 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.

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.

Journal Entry:

Cilia and Green 2000 debited.

                   Stock (the asset account)    2000 credited