Recording of goods purchases as an increase in inventory stocks

In this method of managing inventory accounts, purchases of goods are recorded individually, i.e., each item separately as an increase in the inventory account.

When a purchased item is sold, this results in two entries:

• Liquid Assets/Goods Revenue (Selling price)
• Cost of Goods Sold/Inventory (Cost price)

At the end of the year, no additional postings are necessary. Inventory discrepancies, if purchases were correctly recorded as increases in inventory, have been continuously registered throughout the fiscal year, and the inventory account now shows the current value at year-end.

The advantages of this method are clear:

• The inventory account always shows the current stock of goods.
• Better analysis regarding sales and margins is possible.