Inventory is a current asset account, which means it is something you own that can be turned into cash quickly. When you purchase inventory, you do so out of cash, so one side of the entry is credit cash. The other side, to increase inventory, is debit inventory. The trick with inventory is knowing how to enter it in the books when you use it.
Some common inventory items are materials. There should b a value of raw material in inventory, which matches what you paid for it. As you use your raw materials, you credit inventory, to reduce it, and debit the materials account.
Another way that inventory might be an issue is when you buy something like a large quantity of brochures. If that is entered as a lump sum in your books for any given month, your monthly budget will be shot. So, instead, decide how long those brochures will last you, say three years. Divide the total amount over 36 months, and each month enter in the books the monthly amount.
Here is an example of the whole sequence. First, you buy the brochures and put them in inventory:
| Debit | Credit | |
| 1001 Cash | $5,000 | |
| 1003 Inventory | $5,000 |
Then, given that you plan to use them over 36 months, each month as you use the brochures, you will make an entry:
| Debit | Credit | |
| 5312 Advertising Expense | $140 | |
| 1003 Inventory | $140 |
What you're saying is that each month, you have to cover $140 as the cost of your brochures. It will show up on your income statement as an actual cost. Each month the value of that inventory will decrease by that amount, until it's all gone. Theoretically your brochures will be gone or outdated about the same time.
