Accounting relevant accounts for purchasing and sales

The three central accounts for accounting in purchasing and selling are: Inventory, Cost of Goods Sold, and Revenue from Goods Sold.

Three accounts are used in accounting for the purchase and sale of goods:‍

Inventory: Inventory is an asset account. Purchases increase inventory, while sales decrease it. The inventory account is fundamentally maintained at cost price. The cost price is considered the purchase price of a good including procurement costs. Multiplying the cost price by the quantity results in the cost value.

‍Cost of Goods Sold: Inventory decreases through goods sold. This is reflected in the account via a credit entry. The asset decrease is entered as a debit under Cost of Goods Sold. The consumption of goods is recorded at purchase prices.

‍Revenue from Goods Sold: The cash balance increases from cash sales, and accounts receivable increase from credit sales, which is recorded as debit entries in the cash and receivables accounts. The asset increases are recorded as credits under Revenue from Goods Sold. Booking here, of course, is not done at cost prices, but at sales prices.