When Is Purchased Inventory an Asset or an Expense? Accounting Rules and Examples

Goods purchased for resale are generally recorded as inventory, a current asset, when recognition criteria are met. Their cost becomes an expense called cost of goods sold when the goods are sold, according to the inventory accounting system.

For example, purchasing inventory for 10,000 does not automatically create an expense of 10,000. If goods costing 6,000 are sold, cost of goods sold is 6,000 and remaining inventory is 4,000, assuming no other transactions or adjustments. Also consider damaged stock, inventory write-downs, and purchase costs. Try Cash Cloud for free to explore purchasing, inventory, and accounting tools.