When you purchase inventory which account is debited?

Definition of Purchases and Inventory

When a company uses the periodic inventory system the amount of the company's inventory is determined by a physical count at the end of the accounting year. Throughout the year the general ledger account Inventory is dormant and contains only the cost of the prior year's ending inventory. With the periodic inventory system, the costs of additional purchases of goods are debited to the temporary account Purchases. (There will also be temporary accounts that will be credited for Purchase Returns and Allowances and for Purchase Discounts.)

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Definition of Purchases and Inventory
What do you debit when you buy inventory?
How do you account for inventory purchases?
When inventory is debited what is credited?

When a company uses the perpetual inventory system, the general ledger account Inventory is continually being updated for all the purchases and sales of goods:

The costs of the goods purchased are debited to Inventory
The costs of the goods that were sold are credited to Inventory and are debited to the income statement account Cost of Goods Sold
The costs of purchase returns, purchase allowances, and purchase discounts are credited to Inventory

Companies often have sophisticated inventory systems outside of its general ledger. As a result, a company may find it advantageous to use the periodic inventory system in its general ledger (instead of the perpetual inventory system) especially when it uses the LIFO cost flow assumption for valuing its inventory and cost of goods sold.

What do you debit when you buy inventory?

If you buy $100 in raw materials to manufacture your product, you would debit your raw materials inventory and credit your accounts payable. Once that $100 of raw material is moved to the work-in-process phase, the work-in-process inventory account is debited and the raw material inventory account is credited.

How do you account for inventory purchases?

Tip. To calculate inventory purchases, subtract your closing inventory from beginning inventory, and then add in the inventory purchases you made during the accounting period, which are part of your cost of goods sold.

When inventory is debited what is credited?

When the retailer sells the merchandise the Inventory account is credited and the Cost of Goods Sold account is debited for the cost of the goods sold.