How do we treat a case of goods meant (canned drinks) being withdrawned by the manager of a company and used for entertaining some visiting company's bankers during business hours? Should the inventory be treated as a sale or what? Please help with the journal entries to make in the books of account.

You can just remove it from inventory at cost and charge it to Entertainment Expense. In the U.S. keep in mind that the tax treatment is different (used to be 50% allowed - been too long since I've done that), but you can still charge it all to Entertainment on your books.

For tax purposes keep a good record of it, not only including the cost but also who the people were and what business was discussed. If no business was conducted, you wouldn't be allowed to deduct that for taxes, but you can always note that some business or other was discussed. But you didn't hear that from me.

Thx a lot Morgaine.

Can this also be treated by debiting Entertainment and creditting an account I will create and call STOCK ADJUSTMENT account using stock cost price?

DR - ENTERTAINMENT
CR - STOCK ADJUSTMENT

What do you think?

Um... I see no reason at all to do that, except for your own benefit if you want to keep an internal record of that. (I'm pretty anal and I see no reason for it.) But if you're going to do that, I would also do two other things. One, don't record it on the balance sheet that way. Just net it out... because this isn't like a value adjustment or even a loss. It's literally gone. Second, close it out of the stock at the end of the year and get rid of that adjustment.

Basically, the idea is not to have it on the "official" records, but you can have an internal record of it if you like.