When you check off “I Inventory This Item” the way that the accounting works is different for when you do not inventory the item.

Accounting for a Non-Inventory Items

If you don’t inventory an item it expenses the item when it is purchased and records income when it is sold.

Item Purchase

• Debits the assigned Expense account.
• Credits A/P.

Item Sale

• Debits A/R,
• Credits the assigned Income account.

Accounting for Inventoried Items

If you do check off “I Inventory This Item" it becomes more complex because you are tracking the inventory that you have on hand as an asset. When you purchase the item it is put into your Asset account with a debit. This represents your ownership of the item. Then when you sell the item it credits your Asset account to take it out and it and debits your Cost of Goods Sold account to expense it. Then it also credits your Income account for the revenue you have received.

Item Purchase

• Debits the assigned Asset account.
• Credits A/P.

Item Sale

• Debits A/R.
• Credits the assigned Income account.
• Debits the assigned Expense/Cost of Goods Sold account.
• Credits the assigned Asset account.