Why learn about purchases and sales of merchandise?
Imagine you decide to follow your passion and open a store that sells (and installs) modern voice-recognition sound systems and navigational hardware and software in cars for people who want an upgrade or maybe have an older car with outdated (or no) such software and hardware.
If all you were doing was the installation, you would just be providing a service, but since you are also recommending and providing the actual hardware, you’ll need to have some stock on hand (people don’t like to wait for you to order the parts you need).
What are the issues you will have to deal with? How much inventory should you order? How do you pay for them? How do you establish the price of the item? Will you charge separately for the service component of the sale? Where will you store your inventory and how many will you keep on hand? And what are the accounting issues you will have to understand? What accounts do you debit and credit? How do you account for discounts? How do you account for items that get returned to you? How will you account for items you return to your supplier?
We’ve been analyzing a service business up until this point to be able to tackle these issues and more with regard to inventory once we have the basics down. Now, you are ready.
In this module, you’ll learn how to match the cost of items companies buy for resale to the revenues they generate. You’ll learn exactly what inventory is, and isn’t, and you’ll learn how accountants translate the purchase of products held as stock in trade from an asset to an expense.