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Why don't we credit inventory for goods given for charity?

Accounting Entries 498 views 4 replies

Usually,when goods are given for charity,the entry is 

Donation ac.                        Dr

                To Purchases

Why can't we just credit inventory?

Replies (4)

we do that right. From 

By COS 

To Inventory. 

This will setoff purchases with inventory and the remaining can be shown as loss due to donations and get that balance subtracted from revenues;

Another way to explain is 

There is no other way. Only closing inventory like above is used in profit statement. I'm just wondering myself why is there no dispatch account as an offbalance sheet account. That way 

Dispatch a/c 

To inventory a/c can be recorded. Sometimes these inventory causes problems and main in auditing cause it's hectic and prone to errors.

 

 

 

 

 

To think of, we don't have to derecognise purchases. 

Donations a/c 

To inventory.

But this will impact non gaap measures like gross profit margin ratio

 

I meant gaap measures. Ebitda is a non gaap one


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