Bookkeeping Basics
Understand inventory, purchases, cost of goods sold, product margins, shipping, supplies, returns, and stock counts.
Best for: product sellers, e-commerce businesses, retailers, makers, and businesses buying goods for resale.
Important: This article is general bookkeeping education. It is not tax, legal, payroll, or accounting advice. Rules and correct treatment can depend on entity type, industry, location, software setup, and professional judgment.
Inventory is product held for sale. Cost of goods sold is the cost connected to products sold. Product businesses need extra tracking.
What this means
Inventory and COGS connect purchases, stock on hand, sales, returns, shrinkage, and margins.
If inventory purchases are recorded incorrectly, profit and product margins can be misleading.
Core concepts
Products held for sale may be tracked as an asset until sold.
Direct cost associated with goods sold during the period.
Returns, damage, shrinkage, and count differences need documentation.
Sales minus direct product costs helps evaluate profitability.
Step-by-step workflow
- Gather the source records. Save statements, receipts, reports, screenshots, contracts, confirmations, or notes that support inventory and cost of goods sold.
- Identify the business event. Decide what actually happened before choosing a category or changing a report.
- Match the money movement. Compare the bookkeeping record to bank, credit card, loan, payroll, or platform activity.
- Choose the right treatment. Separate income, expense, asset, liability, equity, transfer, and owner activity instead of using one catch-all category.
- Review for duplicates and timing. Look for repeated entries, missing transactions, old balances, refunds, chargebacks, and period cut-off issues.
- Save final notes. Keep a clear explanation so the owner, bookkeeper, or accountant can understand the decision later.
Review checklist
- The period, account, and source report being reviewed are clearly identified.
- Transactions are not duplicated or counted in the wrong period.
- Unclear items are placed on a question list instead of guessed.
- Supporting documents are saved in the monthly records folder.
- The final report or template includes notes for unusual activity.
Common mistakes to avoid
- Guessing from the bank description only. Bank descriptions are helpful but often incomplete.
- Using miscellaneous too often. Too many miscellaneous entries make reports less useful.
- Skipping documentation. A correct number is harder to defend when the source is missing.
- Ignoring balance sheet effects. Some activity affects assets, liabilities, or equity rather than the P&L.
Example review map
| Area | What to review |
|---|---|
| Documents | Confirm the files supporting inventory and cost of goods sold are saved and named clearly. |
| Category | Confirm the category describes the business purpose and account type. |
| Balance | Confirm any related bank, card, loan, tax, payroll, or owner balance makes sense. |
| Questions | List missing details and assign follow-up before closing the month. |
| Handoff | Save a short note for the owner, bookkeeper, accountant, or tax preparer. |
FAQ
Is inventory an expense?
It may be an asset until sold depending on setup. Ask a professional.
Can templates replace inventory software?
Templates can help summarize and review, but high-volume inventory may need dedicated systems.
Can I use this with a KanderBooks template?
Yes. Use the article as a workflow guide, then use the matching KanderBooks template to organize amounts, notes, dates, confirmations, and review questions.
When should I ask a professional?
Ask a qualified bookkeeper, accountant, payroll provider, or tax professional when the item affects taxes, payroll, loans, prior-period reports, legal compliance, or financial statements used outside the business.
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