[Jonathon16]

Hello, I am doing an Accounting class and I can't figure out how I am supposed to add the inventory account to my trial balance when I do the debits and credits don't balance. What am I supposed to do to make it balance.

[Just Looking]

I need more information to understand what you are asking. It sounds like you were given a starting trial balance and you are posting adjustments, including inventory. What did your question tell you about Inventory? Did you make an entry that had a debit and credit entry? If so, what was it?

[Jonathon16]

In my course I am doing accounting for a fake business. I am just getting up to the part about Cost of Goods Sold. The course material tells me to make a Merchandise Inventory account but not what to do with it. They told me to put all inventory purchases into the "purchases" account. They gave me transactions for 1 month (whenever a sale occurred they told me the cost of goods). Now, I need the "Merchandise Inventory" account to make the COGS. I don't know how to journalize the entries to put the cost of goods into the "merchandise inventory" account to make my COGS.

[Just Looking]

Okay, now I know what you are asking. Thanks.

There are two different systems used in Merchandising Companies. The one that uses a Purchases account is called a periodic inventory system. When Purchases are made, the entry is to debit Purchases and credit Accounts Payable. The Purchases account is not an asset or an expense account. It is used to "hold" the amount of the purchases for the month and then the amount will be divided between COGS and Inventory depending on the COGS for the month. Basically, each month you will empty out the Purchases account. A portion will go to COGS and a portion will go to Inventory.

Normally (and by that I mean in the real world), an inventory of remaining purchases will be made and that amount would be adjusted to obtain the correct amount in Inventory, with the balance going to COGS. Since your lesson is telling you the amount that is COGS, the remaining amount must be Inventory. Did your example have a beginning inventory? This may be obvious, but I just wanted to make this statement to hopefully help you understand further:

Beginning inventory + purchases = goods available for sale
Good available for sale - ending inventory = COGS

In your example, they are giving you COGS so:

Goods available for sale - COGS = Ending inventory

Your entries will be to move the amount given as COGS from Purchases to COGS. When you have done that, the remainder will be moved from Purchases to Inventory.

[Jonathon16]

Thanks for your answer I'm starting to understand. My beginning inventory was $0.00. Is there supposed to be a "Cost of Goods Sold Account" in the ledger?

[Just Looking]

Yes, there is a COGS account in the ledger for merchandising companies. The balance is just what it sounds like - the cost of the materials that were sold. When you eventually get to your Income Statement, that balance will appear as:

Income
Less Cost of Goods Sold
Gross Profit

Your general and administrative expenses will follow, eventually leading to Net Income.

I'm just telling you this so you can start understanding the flow of all these accounts.