Accounting For Goods And Raw Materials – Accounting

accounting

Commercial enterprises engaged in trading activity buy goods to resell them as they are, that is to say without transforming them. In accounting , these goods are called goods and are subject to a particular accounting treatment . Compta-Facile  focuses here by answering the question: how to account for goods?

 

Accounting for the purchase of goods

Products purchased for resale represent, in accounting terms, jobs that are consumed in the first use. They disappear immediately afterwards. These purchases represent expenses and the corresponding expenses are recorded in account 607 “Purchases of goods” .

 

The following is the accounting entry for an invoice for the purchase of goods:

We debit:

  • Account 607 “Purchases of Goods”
  • Account 44561 “VAT deductible on other goods and services”
  • And account 401 “Suppliers” is credited .
  • When the bill is settled, the debt goes out:
  • Account 401 “Suppliers” is debited ,
  • And account 512 “Bank” is credited .

 

In the case of incidental purchasing costs (freight charges, customs duties in particular), they generally have to be incorporated into the purchase price of the goods and must therefore be recorded in account 607 “Purchases of goods”. They will then form their cost of acquisition. They may also be recorded in account 6087, “Incidental expenses on merchandise purchases”.

Example : a company acquires goods for 10 000 euros excluding taxes. To this amount are added postage for 100 euros excluding taxes and VAT for 220 euros. The goods are delivered on 15/10 / N and the invoice transmitted on this date. It is settled by bank transfer on 31/10 / N. Here is the handwriting that the company will post in a purchase journal at 15/10 / N:

  • Debit from account 607 “Purchases of goods” for € 10,100,
  • Debit from account 44561 “VAT deductible on other goods and services” for 220 €,
  • And credit of account 401 “Suppliers” for 12 120 €.
  • At 31/10 / N, the following entry must be recorded in the bank log:
  • Debit from account 401 “Suppliers” for € 12,120,
  • Credit for account 512 “Bank” for € 12,120.
  • Accounting for the adjustment of unsold goods

 

The traders to keep records perform at the approach of the end of their financial year, a physical inventory. Its objective is to identify and evaluate all the assets and liabilities of the company. The unsold goods are therefore counted and evaluated according to a precise method of calculation (the weighted average cost or the “first in, first out”). They are subsequently booked in a special way, since they are of a stockable nature. They represent, as such, stocks of goods.

  • Here is how to account for inventories of goods at the end of a fiscal year:
  • Account 37 is debited “Inventories of Goods”
  • And account 6037 “Change in Inventory of Goods” is credited .
  • At the beginning of the next accounting period, this entry must be reversed (this will make it possible to record the initial stock of goods in the new financial year):
  • It debits the account 6037 “Change in inventories of goods”
  • And it credits account 37 “Stocks of goods”.

 

Note: The difference between the initial stock and the final stock, together with the amount of goods purchased during the year, represents the cost of purchasing the goods sold (a fundamental factor for calculating a margin).

 

Example : A company has an initial stock of 20,000 euros. In the course of the financial year, it bought EUR 80,000 worth of goods. At the balance sheet date, on 31/12/12, it evaluates the unsold merchandise at EUR 10,000. Here is the handwriting that she must record on 31/12 / N in a journal of various operations:

Debit of account 37 “Inventories of goods” for 10,000 euros,

Credit of account 6037 “Change in inventories of goods” for € 10,000.

The purchase cost of goods sold during the year is € 90,000 (20,000 + 80,000 – 10,000).

Conclusion : Purchases of goods are recorded in account 607 “Purchases of goods”. At the end of the year, goods in inventory must be credited to account 6037, “Change in inventories of goods”.