Purchase_Resale vs Inventory

rezaee08

Hello All,

I need to know more about the entry of Purchase of Retail item vs the inventory. My business is purchasing products and do some value addition and sale in a bit higher price.
For an example, purchase items by 100 and sell at 110.

Now what I'm facing is there is no tracking of my inventory like if I purchase 50 items by 50x100=5000 and sell 20 items by 20x110=2200.

Purchase_Resale= 5000
Income= 2200

Where are the rest 3000 valued products?
This must be in anywhere in the inventory. Otherwise how may I know how much asset do I have right now?

Requesting everyone to help.

AlexL

Hi @rezaee08 . Wave doesn't handle inventory in its platform so you're unable to use it to track your items. For this same reason, Wave won't track products that you're buying at a certain price and selling at another in the reporting.

We do have somewhat of a solution to inventory although it's not based in Wave's basic functionality. Take a look at our Help Center article on inventory to get a better idea on how this works.

rezaee08

Then how you are calculating the profit or loss? Ever time I'll have some inventory. No business can run in such a way buy a certain amount of products and sell all of them at a time. Its a continuous process right?

Mikeg

@rezaee08,
As @AlexL mentioned, Wave does not track inventory automatically, meaning it will not debit cost of goods sold (like purchases) and credit inventory when you sell something. This has to be manually done through journal entries. What I recommend to my clients in the US is to just expense all items purchased for resale under Purchases - Cost of Goods Sold. At the end of the fiscal year, you would debit inventory and credit purchases to account for any items the business held in inventory at cost. In the next fiscal year you would continue to expense all purchases for resale. At the end of the second fiscal year you would debit or credit inventory and purchases to adjust the balance of inventory on hand. You could do this monthly. It would just require you to take a monthly inventory count.

rezaee08

@Mikeg said:
@rezaee08,
As @AlexL mentioned, Wave does not track inventory automatically, meaning it will not debit cost of goods sold (like purchases) and credit inventory when you sell something. This has to be manually done through journal entries. What I recommend to my clients in the US is to just expense all items purchased for resale under Purchases - Cost of Goods Sold. At the end of the fiscal year, you would debit inventory and credit purchases to account for any items the business held in inventory at cost. In the next fiscal year you would continue to expense all purchases for resale. At the end of the second fiscal year you would debit or credit inventory and purchases to adjust the balance of inventory on hand. You could do this monthly. It would just require you to take a monthly inventory count.

Thank you very much for your reply. Could you please help me about the journal entry. For an example:

If I purchase 50 items by 50x100=5000 and sell 20 items by 20x110=2200.

Purchase_Resale= 5000
Income= 2200
Inventory= 3000

how to put this in journal?

Mikeg

@rezaee08,
Sure. Not sure if you have your bank account connected, but I will note if this is something that would be imported automatically.

Purchase
Debit Purchases 5000
Credit Cash (imported) 5000
(To record purchase of product for resale)

Sale
Debit Cash (imported) 2200
Credit Sales 2200
(To post sale of items)

Debit Inventory 3000
Credit Purchases 3000
(To post cost of year end inventory on hand)

Let's check the income statement to be sure it would be correct. Based on your example,
you are making $10 per item (110-100). You sold 20 so the expected income would be 200.

Income 2200

Purchases 5000
Journal Entry (reclass ending inventory) (3000)
Net Purchases 2000

Net Income (2200-2000) 200

rezaee08

Then what will happen in the entries in invoices. I'm giving input every transactions like bellow:

For an example:
Distributor 1:
Invoice 1: 10 unit
Value: 10x110= 1100
Income: 1100

Customer 2:
Invoice 2: 10 unit
Value: 10x110= 1100
Cash payment: 100
Receivable/Due: 1000

Still I have to give journal input?
Can you please give me your email address so that I can make you guest and get better understanding.

Mikeg

@rezaee08,
My email is mike@mgfinancial.net. I can only assist with US businesses since that is what I'm familiar with.
It appears from your question is that you are manually entering each transaction. In accounting every transaction that effects the business should be recorded. It can get burdensome to do one by one (journal input) when there are lots of transactions. Wave can usually connect to a bank account and import banking transactions which would make things a little easier. I would recommend securing a professional within your country to help you set up your books and records so that it is consistent with how items are treated locally. There are resources available here on the basics of accounting.

MisterGray

I buy and sell merchandise. In transactions I'm entering the purchased merchandise as an "Expense". Once I sell it, I enter another line item for the exact same item as "Income". Is that the correct way to do it or should I somehow be converting/changing the already entered "Expense" for the item to a "Income"? I'm not quite use to accounting yet and come from the land of spreadsheets.

Barsin

Hey @MisterGray

I've merged your question into a potentially helpful thread where you may be able to glean some valuable info regarding your resale of goods!

Also if you haven't checked out our Inventory Tracking Article I'd give it a read