Single company accounts

Has it at all struck you that you’re not satisfying double entry?

The difference in the questions is, I assume, the fact that in the second question the sale value is still in Receivables whereas in the first example the debt had been settled

Now, this double entry problem …… Inventory is a strange matter. The recording of inventory is not achieved through the normal transaction double entry route.

We used to say, when I started teaching all those years ago, “Inventory is its own double entry”

Let me explain …. when we buy goods and put them into inventory, the double entryis Dr PURCHASES (NOT Inventory) Cr Cash

And when we sell goods from inventory, the double entry is Dr Cash Cr REVENUE (NOT Inventory)

So accept that inventory is not part of double entry.

At the end of each year, inventory is physically counted and valued and we arrive at a figure of, say, $16,900. (This physical count is done AFTER the trial balance has been extracted and balanced)

The value of Opening Inventory is added to the year’s figure for Purchases and then $16,900 is now deducted (credited) from that sub-total to give us Cost of Sales

But we can’t have a credit without a debit so the $16,900 appears as an asset (a debit) on the statement of financial position

In the question Atlas, there must be another entry equivalent to the debit entry that we’re putting through Revenue

“Deduct from COS” and “Add back to inventory” is effectively
Cr Inventory in SoPorL Dr Inventory on SoFP

And that’s what has happened in the question Keystone. The debt was still outstanding so we Dr Revenue and Cr Receivables and then …
Cr Inventory in SoPorL Dr Inventory on SoFP

Is that better?