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During the year, whenever you buy goods you DR Purchases and Cr Cash or Payables
It is at the end of the year that you make the inventory adjustment by DR Inventory and CR Statement of profit or loss.
Watch my free lecture on this website on Inventory and you will see all the double entries.
Dear John,
Understand it. But someone told me that:
– If the inventory follows perpetual way, when we purchase new inventory, we dr inventory
– If the inventory follows periodic way, when we purchase new inventory, we dr purchaseis that correct?
Not really!
Without computers (and always in the exam) it is the way I wrote above.
With computers it depends on the software – simple accounting software does it the manual way (and you have to key in the inventory at the end of the period). More advanced software keeps an inventory account and a purchases account and effectively does the entry every time something is bought or sold.
Sorry for bother you again, does IAS 2 say anything about it? I read but could not absorb it.
No. The accounting standards do not specify how to do double entries.
The standard is about how inventory should be valued in the financial statements.Talking about what?
None of the accounting standards talk about double entries – there are always more than one way that the double entries can be done.
And of course, the exam has little about debits and credits – it is not the double entries that are important for an accountant. What is important is how to value inventory, how to decide on a depreciation policy etc. – they are nothing to do with the double entry.
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