My wife has started a small biasness, selling her collection of postcards, etc. on the web.

Question - what entries do I need to make for the sale of an item in the journal (I am using MS Small Business Accounting Software).

For example, she sells a postcard from her personal collection for $100 dollars.

Does she first need to contribute the postcard to inventory, and then record the sale? Is tis owner's equity, or inventory?

Once the sale occurs, what basis should she used (she has no record of purchase date or price).

Thank you in advance for your help.

This sounds like a small business that is done in the free time.

It sounds like you wife is just selling this and that online that she chooses to.

So therefore, I would say:

After she makes a sale (for $100 for a postcard).

Debit Cash or Accounts Receivable 100
Credit Sales 100

Note that if it's Accounts Receivable, once you receive the money,
Debit Cash
Credit Accounts Receivable.

Although this is like an e-bay thing, so all sales are cash sales.

To re-cap:
Debit Cash 100
Credit Sales 100

Debit Inventory (the cost of the post card that your wife paid for it)
Credit Owner's Equity

Debit Cost of Good Sold (for the same amount as the above transaction)
Credit Inventory

It should also be noted that technically you should be collecting GST and PST (or Sales tax if your in the USA or wherever).

If you do collect Sales tax (let's say 8%), then

Debit Cash 100
Credit Sales Tax Payable 7.41
Credit Sales 92.59

Thank you for the quick response.

As for the cost of goods sold - most of these items were purchased many years ago, so the cost of goods sold is unknown. For all intents and purposes, we use zero. Thus, would the inventory entries even be needed?

- Debit Inventory (the cost of the post card that your wife paid for it)
- Credit Owner’s Equity

- Debit Cost of Good Sold (for the same amount as the above transaction)
- Credit Inventory

Or should we estimate a cost based on market? Do we use lower of cost or market?

Thanks.

If she is just selling her own personal property, then in reality this is not a business yet, she is just a private owner selling her own property.

So in general you should not be trying to make a business out of this but merely keeping track for your own personal records how this is doing.

You would be in business if you acutally bought things that you intended to sell.

What you have described is like me selling my lamp, old chair and bird house at a yard sale. I sell a lot of our old music books on eBay, but there is no business, I am merely selling old personal property.

Just because you are selling on eBay does not make you a business.

Now if you like what you are doing and start buying things to sell, then you are a business.

Yes, you definitely want to have some value of the inventory, as that will minimize your cost. Using lower we use lower of cost or market method to valuate your inventory would certainly be a possibility.

If you have a value to your inventory, your overall net income will be lower, therefore, you pay less taxes.

Example:
I sell a postcard for $10.
Revenue 10
COGS 0
Net Income 10

However, if you valued the post card at $3, then….
Revenue 10
COGS 3
Net Income 7

A lower Net Income, therefore, you have less taxable income.


And I agree with the point Fr Chuck brought up. If this is just your wife selling a few items on e-bay, there really is no need to keep such detailed transactions. But of course, you can if you wish to.

Thanks for the replies.

I think I will leave the inventory basis out of the accounting... since she has no record of the purchase value for any one card. We will just have to live with the higher tax basis.

As for what level of accounting we are using - she has about 150,000 cards and expects to sell 150-200 cards per month. There are eBay fees, PayPal fees, postage, shipping costs, web hosting fees etc. So I want to make sure we start our business with the right accounting practices.

Thank you again for your help.

From a quick search, I am finding that the fair market value of specialized/customized post cards seem to be in the range of 11 cents – 30 cents per post card.

A website for your wife to look into:
http://www.ehow.com/buy_11239_postcard.html

The postcards she sells are "collectible" postcards. You can view her listing on eBay, seller name "maine*coast".

Thanks for taking the interest to do the research...