What's the double entry when you buy stock?

Answer 1

First Answer :

Debit an account called investments and credit an account called Cash (or a payable)

Second Answer :

The first answer is referring to buying of Stocks (as in Shares like those listed on a Stock Exchange).

If you are thinking of stock such as raw materials of a business or stock for resale (- e.g. an electrical appliance store purchases TVs for resale therefore the TV is their stock) than there is actually NO DOUBLE ENTRY because there is NO SUCH THING as a STOCK ACCOUNT.

Stock is recorded using a physical record in and out. This gives rise to different stock valuation methods (FIFO, LIFO, AVERAGE).

Why is there no STOCK ACCOUNT in double-entry? Because you buy something for say £10, you will want to sell it for a higher price, say £15 to make a profit. If you have a Stock Account, it will not balance.

So how is "stock" recorded in your standard double-entry system?

"Stock" is actually recorded using 4 accounts:-

Increase in Stock

Purchases A/C

Return Inwards A/C

Decrease in Stock

Sales A/C

Return Outwards A/C

The balancing is done at the year end through your Profit and Loss A/C. The difference is your "Profit or Loss".