Saturday, May 12, 2012

Accounting Journal Entry for Inventory Sample

What accounting methods do you use for inventory that is used for samples in an ongoing business? Specifically, the inventory items are spilt up and used in multiple samples (i.e. carpet pieces). At the end of the day, there will be some left over that will also be discarded.

Accounting Answer:

It should work out to treat the sample inventory as a cost of sale. That is, you can separate sample inventory from your current inventory by doing an easy journal entry:

Debit Sample Inventory......x
Credit Inventory..........x

When your sample inventory is depleted or discarded, then charge it to net income.

Debit Cost of Sales.........x
Credit Sample Inventory.........x

The reason for this accounting method is because you are treating the sample inventory as a means to sell original inventory (cost of selling the product). Thus, it is appropriate for an acceptant to charge it as a cost of sales or cost of goods sold account when discarded.

Also see how to calculate beginning inventory.

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