Accounting line movements to control Inventory Costs for Sales Revenue
Online HTML editor: https://html-online.com/editor/
Introduction:
Accounting movements consist of four basic concepts:
a) Assets: company positive belongings.
b) Liabilities: company debts or obligations to external entities.
c) Debit Column: Debit or Credit columns register every movement of Assets or Liabilities. For Assets, the movement amount grows in the Debit column and decreases in the Credit column.
For Liabilities is backward. Movement amount grows in the Credit column and decreases in the Debit column.
d) Credit Column. Same explanation than Debit.
|
To control the revenue on every sale, it is necessary to record the cost of the Purchase Order for every product on the inventory.
To purchase a product from providers and keep a record of the cost, the event of PURCHASE must be kept in five account lines with the following movements in figure 1:
Figure 1
The same after every sale. It is necessary to keep the Sales Cost doing five account movements lines describe below in figure 2:
Figure 2
The sales cost account line keeps the cost of the inventory at the moment of the Sale to the customer. Also the Kardex Inventory keeps the lot, cost of Purchase Order of the Lot, and the Inventory revalorization value depending on the method applied. It could be Fifo, Lifo, and Average. See figure 3.
Figure 3
Explanation of Purchase Order Account Lines Movements
a) Purchase Order. Figure 4.
a.1) Budget Request for 5 steel boxes, 1000 ea. Total: 5000.
A Credit of 5000 for Liabilities account Purchase products.
a.2) Provider delivers products: Double entry movement a debt of 5000 Assets account Inventory Products.
Figure 4
a.3) Provider delivers Invoice. Figure 5.
Invoice for 5000 + Tax 21% 1050 = 6050.
A Credit of 6050 for Liabilities account Debt to Providers.
A debit of 1050 to Assets, Tax Credit.
Debit of 5000 in Liabilities, Purchase products.
Figure 5
Explanation of Sales Account Lines Movements.
a) Client Purchase Order. Figure 6.
Sale of 4 steel boxes. Cost: 1000 ea. Total: 4000.
This is the key account. It keeps information about the sales cost to get the revenue on each sale.
Account lines movements:
a.1) Credit of 4000 on Assets account Inventory Products. Keep track of the client invoice number when he/she delivers it.
a.2) Debit of 4000 on Liabilities account Sales Cost. Keep track of the client invoice number when he/she delivers it.
Figure 6
b) Client delivers invoice. Figure 7.
Sale of 4 steel boxes with a sale price of 1,500 ea. Total 6,000.
Remember that the sale cost was 1,000 ea. total 4,000 keep in the previous two movements.
Tax to pay 21% of 6000 equals to total invoiced of 7,260.
Debit of 7,260 for Assets account Clients accounts receivable.
A Credit of 1,260 for Liabilities account Tax to pay.
Debit of 6,000 for Liabilities account Sales.
Figure 7
Impact on the Revenue calculation:
Calculation of Sales Revenue:
The Account on Credit Liabilities 700000A for Sales of 6000.
The sales cost is on liabilities Debit 610000A account with an amount of 4000.
Subtracting 6000-4000=2000 is the sales revenue up to date got from the Account records.
Read this article about "Inventory Cost Accounting to control Revenue" to get an exact amount of revenue per product and sale transaction for every Revalorization method of Inventory using the Kardex.