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F3 BPP:
topic Inventory
Recognition as an expense
l met such treatmentThe carrying amount is recognised as an expense in the period in which the related revenue is recognised
in that case,if enterprise sells old inventory, the amount of income is included in P/L statement as expense?No. You’re getting it wrong here. Let me simplify it.
When inventory is purchased, an expense is incurred. This expense is recorded as:
Dr Purchases
Cr CashWhen inventory is sold, income is received. The entry to record this sale is:
Dr Cash
Cr SalesWhen the accounting period ends, the income from this sale is included in ‘Revenue’ heading in SOPL and the expense is included in the ‘Cost of Sales’ heading in SOPL (either in the Opening Inventory or Purchases).
As far as selling old inventory is concerned, income is included in the ‘Revenue’ while the expense is included in the ‘Opening Inventory’ in Cost of Sales.
@thezadzzz said:
Why is it:Dr Cash…….
When you sell inventory for cash, you receive cash, so the entry to record this is Dr Cash.
You can of course also sell inventory on credit in which case you initially Dr Receivables, and then Cr Receivables and Dr Cash when the customer settles their bill.
@thezadzzz said:
Why is it:Dr Cash…….
When you sell inventory for cash, you receive cash, so the entry to record this is Dr Cash.
You can of course also sell inventory on credit in which case you initially Dr Receivables, and then Cr Receivables and Dr Cash when the customer settles their bill.
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