Purchase decor items for rent - How to categorize?

gemandi

Hi - We are an event planning and decor rental company. As we are starting out (year 2), we are buying products (i.e. candle holders, drink dispenser) to store as part of our physical inventory. As we plan events (i.e. wedding, showers), we rent out these products for their event for a price per product (i.e. $10 for a set of 3 candle holder).

I have 2 question:

1. When purchasing these product (using cash from the business chequing account linked to wave), how would I categorize this purchase? Would I create an "Inventory" account under Asset Chart of Accounts? Or would I create an "Operating" account under Expenses Chart of Accounts?

2. Now, comes the time to invoice the Client for the rental. Would I create a "Decor Rental" account under Revenue Accounts?

Thank You!

Mikeg

@gemandi,
I can speak to how the US system would treat the above. The items purchased would most likely not meet the capitalization rules (treat as an asset or inventory) and would be classified as an operating expense. I would call them Supplies. For the sales piece, that will be up to you. If for management purposes you would like to know how much you are making on the rental of items for events, then you would set up a separate sales account. If that's not important to you then, all items invoiced can go to the same sales account. Income received outside of your normal course of business are usually segregated for reporting purposes on a tax return, interest income as an example.