[Anonymous]

It might be a simple question but I am not really sure how to record this transaction. So this organization buys products from local merchandise and resell those merchandise to customers.

How do they record transactions

1. When they buy products from local merchandise?

2. When they sell these products to customers?

I have journal entries on my mind but I am not sure I am right.. Will you please give possible journal entries? Thank you! 🙂

[gaucho]

1. Recording addition of inventory and obligation to pay, or payment

DR. Inventory (“merchandise inventory” etc.)

CR. A/P (or cash, but more likely A/P)

2. Recording sale and associated receivable and removing inventory and recognizing the expense

DR. A/R (or cash)

CR. Revenue (“sales revenue” etc)

DR. COGS

CR. Inventory

You may also have an allowance for doubtful accounts:

DR. Bad debt expense

CR. Allowance for doubtful accounts

You may also accrue a provision for sales returns, although I haven't encountered this in my CPA studying (iirc).

[gaucho]

1. Recording addition of inventory and obligation to pay, or payment

DR. Inventory (“merchandise inventory” etc.)

CR. A/P (or cash, but more likely A/P)

2. Recording sale and associated receivable and removing inventory and recognizing the expense

DR. A/R (or cash)

CR. Revenue (“sales revenue” etc)

DR. COGS

CR. Inventory

You may also have an allowance for doubtful accounts:

DR. Bad debt expense

CR. Allowance for doubtful accounts

You may also accrue a provision for sales returns, although I haven't encountered this in my CPA studying (iirc).

[Author]

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