Inventory Journal Entries Example | Periodic Inventory System
What is a journal entry for inventory?
To keep track of your inventory transactions, make a journal entry in your accounting ledger. Different types of journal entries can help you organize your financial expenses and profits depending on the kind of inventory and how much your business carries. For instance, some companies use a perpetual inventory system, while others maintain a periodic inventory accounting system. Periodic inventory systems are more efficient for businesses with less inventory because they require less time and detail. Perpetual systems are typically electronic. Theyre in-depth and take time to set up and maintain.
Effective bookkeeping requires that inventories be recorded in journals. It not only assists you in keeping track of your costs and income, but it can also help you balance your books and generate financial reports that let you assess the development and potential for growth of your company. A written record may be preferred by some accountants or business owners over digital programs for tracking inventory transactions. You can choose the inventory journal entry option that best suits your company’s needs by investigating a few different options.
10 examples of different inventory journal entries
There are numerous options for organizing your inventory journal entries because different types of businesses require various levels of inventory. To assist you in tracking your inventory income and expenses, consider the following examples of journal inventory entries:
1. Inventory purchase entry
An initial entry made in your inventory accounting journal is known as an inventory purchase entry. Inventory purchases are processed through accounts payable, which keeps track of your immediate financial commitments to the supplier. It includes any purchases you made for products you plan to sell through your organization or for raw materials to make your company’s products.
Example:
Debit
Credit
Raw materials inventory$100
Merchandise inventory$100
Accounts payable
$200
2. Indirect productions cost record
You should enter any production-related costs for your inventory in this entry. These may consist of materials used in manufacturing, storage, rent, and utilities. You can include the indirect productions costs in your overhead cost pool for this entry. It’s critical to identify your indirect production costs in order to create a comprehensive budget that accounts for all of your inventory-related costs.
Example:
Debit
Credit
Overhead cost pool$100
Accounts payable
$100
3. Production labor record
A production labor entry helps you track your labor expenses. Record any compensation you give to those who produce, store, transport, and sell your products in this section. Those who work in production management or materials management can be among them. As your overhead cost pool expresses the total costs required to produce and maintain your inventory, you typically route your production costs through this pool.
Example:
Debit
Credit
Overhead cost pool$100
Accounts payable
$100
4. Raw materials entry
You might occasionally need a separate raw materials entry from your inventory purchase entry. This record tracks raw material transfers within a storage facility, such as when transferring raw materials from stock to production. Using a raw materials entry, you can keep track of when your production materials are used in production and track the cost of goods as soon as the raw production materials are released from storage. Not all businesses may require this entry, but for those with a protracted manufacturing process, it is useful to account for material costs as they progress through production.
Example:
Debit
Credit
Work in progress inventory$100
Raw materials inventory
$100
5. Scrap and spoiled inventory record
Due to spoilage and other manufacturing-related factors, you might lose some inventory. Before transferring these losses to the inventory record, businesses typically record them as part of their overhead cost pool. You can record the costs as part of the costs of goods sold rather than recognizing them as an asset if the amount of lost goods is unusually high or low.
Example:
Debit
Credit
Overhead cost pool$100
Work in progress inventory
$100
6. Record of finished goods
The record of finished goods helps you track completed products. It calculates the price of goods that have passed the production stage of the inventory manufacturing process. This entry enables you to contrast the price of goods that have been produced and those that have not
Example:
Debit
Credit
Finished good inventory$100
Work in progress inventory
$100
7. Allocate overhead
Record the total overhead costs for the finished inventory, work-in-progress inventory, and cost of goods sold at the conclusion of the reporting period. This assists you in determining your total overhead, which is the sum of the costs associated with each stage of the production process. When you compare your costs at the various stages of the manufacturing process, you can see where you might be able to make savings in the future.
Example:
Debit
Credit
Work in progress inventory$100
Finished goods inventory$100
Cost of goods sold$100
Overhead cost pool
$300
8. Sales transaction record
You must account for your sales in addition to recording your expenses. Your earnings from the sale of finished goods are displayed in the sales transaction record. Transferring the cost of the finished goods sold to the expense account for the cost of goods sold will allow you to record this transaction. The cost of the inventory is transferred from the balance sheet, where it is listed as an asset, to the income statement, where it is listed as an expense.
Example:
Debit
Credit
Cost of goods sold expense$100
Finished goods inventory
$100
9. Obsolete inventory entry
Any finished goods that don’t sell as anticipated are considered obsolete inventory. It’s common for businesses to not sell every item in their inventory. Some products might be damaged, spoil before customers buy them, go out of season, or otherwise cease to be marketable. Businesses account for the likelihood that a certain proportion of their inventory will remain unsold in their inventory journal. They create a record called reserve inventory to keep tabs on the costs associated with unsold goods.
Example:
Debit
Credit
Cost of goods sold expense$100
Obsolescence reserve
$100
10. Lower of cost or market record
Finally, you need to carry out regular market assessments to get a precise understanding of the value of your inventory. These evaluations assist you in determining whether the value listed on your records for any inventory items you possess is higher or lower than the item’s current market value. Create an entry to reflect the change if the market value is different from your recorded value.
Example:
Debit
Credit
Loss on inventory valuation$300
Raw materials inventory
$100
Work in progress inventory
$100
Finished goods inventory
$100
FAQ
How do you record inventory?
Sales are recorded on the operating account with the appropriate sales object code, and inventory purchases are recorded on the operating account with an inventory object code. The operating account receives the cost of goods sold through a cost-of-goods-sold transaction.
What is the double entry for inventory?
The transaction results in a debit to the asset account for inventory and a credit to the asset account for cash. You are exchanging one asset (cash) for another asset (inventory) in this situation. Sell goods.
What is the journal entry when inventory is sold?
Therefore, in a typical sales journal entry, the sale price is debited from the accounts receivable account and credited to the revenue account. The price the business paid for the inventory is debited from cost of goods sold, and the inventory account is credited with the same amount.
How do you record inventory ledger?
General Ledger Entry for Inventory First, enter the date of purchase in the date column. In the Transaction Description column, enter a description of the inventory. Enter the amount in the debit column. Put the new sum in the Balance column after adding it to the current balance.
