Accounting for Inventoried Items

When you check off “I Inventory This Item” the way that the accounting works is different for when you do not inventory the item.

If you don’t inventory an item when you purchase the item it debits your Expense account for the price you paid and when you sell the item it credits your Income account for the revenue you received.

If you do check off “I Inventory This Item" it becomes a little more complicated because you begin tracking the inventory that you have on hand as an asset. When you purchase the item it is put into your Asset account with a debit. This represents your ownership of the item. Then when you sell the item it credits your Asset account to take it out and it and debits your Cost of Goods Sold account to expense it. Then of course it also credits your Income account for the revenue you have received.