Inventory and sales Updated November 2026

Inventory purchase (perpetual)

Under a perpetual inventory system, merchandise bought for resale is debited to Inventory and credited to Accounts Payable (or Cash). Freight paid to bring goods in is added to Inventory, and returns to the supplier are credited to Inventory. Under a periodic system the debit goes to Purchases instead.

Syntax

Dr Inventory / Cr Accounts Payable; freight: Dr Inventory / Cr Cash; return: Dr Accounts Payable / Cr Inventory

Part	What it is
`Inventory`	Asset debited for goods bought for resale, including freight-in; credited for returns, discounts and cost of goods sold.
`Accounts Payable`	Liability credited for the supplier's invoice.
`Purchases (periodic only)`	Temporary account used instead of Inventory when the periodic system is used.
`FOB shipping point`	Buyer owns the goods in transit and pays freight, so freight is part of inventory cost.

Examples

Dr Inventory 8,000 / Cr Accounts Payable 8,000

Result: Assets up 8,000, liabilities up 8,000

Merchandise bought on account, terms n/30.

Dr Inventory 200 / Cr Cash 200

Result: Inventory cost rises to 8,200

Freight paid on the shipment, FOB shipping point.

Dr Accounts Payable 500 / Cr Inventory 500

Result: Liabilities down 500, inventory down 500

Damaged goods returned to the supplier for credit.

Common mistakes

Debiting Purchases in a perpetual system: perpetual systems keep Inventory current, so the purchase is debited to Inventory.
Expensing freight-in as delivery expense: freight on goods bought is part of their cost; freight on goods sold to customers is the selling expense.
Debiting Cost of Goods Sold at purchase: cost becomes an expense only when the goods are sold.

Practice Inventory purchase (perpetual)

These drills check your answer on live data, free, no account needed.

Merchandise bought on accountHarbor Outfitters, which uses a perpetual inventory system, buys $8,400 of hiking boots from a supplier on account, terms n/30.
Freight on purchasesRidgeway Hardware bought merchandise with terms FOB shipping point. When the goods arrive, it pays the trucking company $360 in cash for the shipping. Ridgeway uses a perpetual inventory system.
Purchase returnSunrise Toy Shop bought merchandise on account last week and has not yet paid. Today it returns $750 of defective toys to the supplier and receives credit against its balance. Sunrise uses a perpetual inventory system.

Questions

What is the journal entry for purchase of inventory on account?

Under a perpetual system debit Inventory and credit Accounts Payable. Under a periodic system debit Purchases and credit Accounts Payable.

Is freight-in part of inventory cost?

Yes. Transportation to bring goods to your location is a cost of getting the inventory ready for sale, so it is added to Inventory (perpetual) or Freight-In (periodic).

Cost of goods soldHow to record cost of goods sold: Dr Cost of Goods Sold, Cr Inventory at each sale under a perpetual system, or compute it at year end under periodic.
Purchase discountsHow to record paying a supplier within the discount period: Dr Accounts Payable, Cr Cash and Cr Inventory (or Purchase Discounts). Gross and net methods.
Purchase on accountHow to record buying on credit: debit the asset or expense received and credit Accounts Payable. Examples for supplies, equipment and merchandise.
Inventory write-downHow to write inventory down when net realizable value falls below cost: Dr Cost of Goods Sold or Loss on Write-Down, Cr Inventory. Shrinkage included.