Recording of goods purchases as an increase in inventory stocks

With this method of keeping goods accounts, purchases of goods are recorded individually, i.e., each item is recorded separately as an increase in the goods inventory account.

When a purchased item is sold, this results in two accounting entries:

• Cash/revenue (sales price)
• Cost of goods sold/inventory (cost price)

No additional postings are required at the end of the year. Provided that purchases of goods have been correctly posted as increases in merchandise inventory, inventory differences have been recorded on an ongoing basis during the fiscal year and the merchandise inventory account now shows the current value at the end of the year.

The advantages of this method are obvious:

• The inventory account always shows the current inventory.
• Better analyses of sales and margins are possible.