now that your file has been set up to be able to buy and sell merchandise you now have to put your
inventory on the list of items from this moment forward we will declare that the word merchandise
and the word inventory and the word goods mean the same thing they are the thing that you buy and
sell and I will use these words interchangeably in level 5 in each of these videos you must be very
clear about the vocabulary words that I am using when we put your merchandise and your inventory
on your items list when I say purchase cost I am referring to the amount of money we pay when
we buy the inventory when I say sales price I am referring to the amount of customer the amount the
customers give us when we sell inventory you must make a clear distinction between these words and
do not use them interchangeably purchase cost when we buy will accumulate in the account inventory
asset the sales price when we sell will accumulate in the general ledger account called sales income
that we put on the list in the previous video there is one more thing that happens behind the
scenes when we sell merchandise when we sell merchandise an additional thing that happens
is that the purchase cost of the merchandise comes out of the inventory asset account and
goes into the cost of goods sold account here are the two items of merchandise that we will
buy and sell we have the name the purchase cost and the sales price let's take a look at how we
will add them to the items list from the main menu we click list item list now of course we
go to the bottom left and we click item new it's asking us what type of item this is and of course
we choose inventory part notice additional fields of information open up if it is an inventory part
rather than a service item the name of the first item will be apples now the purchase cost is $10
and the sales price is $50 of each barrel each bushel or each unit of apples notice the cost
of goods sold account is already selected as the account that QuickBooks created whatever
account you put in this field is the account that will increase by the purchase cost every time you
sell the merchandise notice the inventory asset account that QuickBooks automatically added is
already here selected as the default inventory account whatever account you put in this field
is the account that will go up by the purchase cost when you buy the merchandise and whatever
account you put here will go down by the purchase cost when you sell the merchandise the last piece
of information to put in the field is the income account and we know that sales sales means that's
the income and the sales price that the customer pays for the merchandise when we click OK we now
have apples as an inventory part add it to our items list let's do bananas item new inventory
part the name of the item is bananas the purchase cost of the bananas is $20 the sales price of the
each bushel or each barrel of bananas will be $100 every time we buy bananas inventory will
go up by the purchase cost every time we sell bananas inventory goes down by the purchase cost
and cost of goods sold will go up by the purchase cost of only the bananas that we sold the sales
price that comes in from the customer will go into sales income when we click OK we see we now have
art to inventory parts on the items list and we are now ready to buy and sell apples and bananas