Purchases of Inventory Items looks incorrect

I am not an accountant but perhaps I am missing an important step as there appears to be an extra information in the expenses recently which is not meant to be there and just getting frustrated not understanding what had I done wrong.

To give some screen shots of my workflow perhaps someone can see what I did incorrectly.

  1. Inventory.
    We have a opal item added in the inventory. Note: I don’t know how to convert Amercian dollars currency so I left it as is in Australian dollars which is 10.99 for now.

  1. Purchase Order.
    I have a purchase order made. Yes, item 10.99 is more than the listed inventory which is ok our supplier covered for 17.94.

  2. Payment of supplier, all good.

  3. Customer buys opal from us and paid in cash all good.

  4. Summary and Reportting.
    Here is where I am getting confused, the Purchase of Inventory item shows 17.94?!?!?


Umm, help. I would like to see that Pendant amount as 0.00 not 17.94 as it is not an expense as everything was completed normally and paid for.

Actually $17.94 is correct. You have purchased item for $17.94 so it became your asset. Then you sold this item for $40 so that’s $40 in income and $17.94 was moved from assets to expenses.

Why it works this way? That’s how inventory works. When you purchase it, it is your asset, not an expense. It only becomes an expense once sold (or on cash-basis once being paid for the sale). See: Inventory and Cost of Goods Sold | Explanation | AccountingCoach

The question is, how come none of your other sales are posting to the purchases account? Where are you getting inventory items you sell from? Do you purchase them or manufacture them?

Thanks lubos for responding, it makes some sense for now. :smile:

Also thanking for the additional background article from accounting coach.
So it appears after reading this that I am meant to have more costs in the expense as a result of purchases made.

I am not sure why it is not working regarding “how come none of your other sales are posting to the purchases account” correctly and not sure how to correct this at this stage. All our purchase invoices are paid in full as I shown in Dec 2014.

All our inventory is purchased not manufactored from ebay website paid electronically through service of paypal (from several bank accounts). There was a forum discussion eariler on how to manage personal accounts with business accounts so I ensure there is a liability chart of accounts done to make this happen this way.

EDIT: I meant also to say, we put together some parts ordered from ebay to make a new product and I entered that item in the inventory. I should have made a purchase order for these items as well.

Kind regards,