How do you remove items from inventory for use in the business?
I recently opened a 3D Printing business - home based.
There are 3 components to my business:
- selling of 3D Printing products,
- 3D Printing services (where I 3D print the item for the customer); and
I have purchased a variety of items (for example, filament spools) from a vendor, mainly for the purpose of reselling. When I received the invoice for the purchase order of such items, I have been entering the following:
A debit to Inventory - asset account
A credit to Accounts Payable - liability account
As I sell these items to a third party (customer), I record the following:
A debit to Accounts Receivable - asset account
A credit to Sales - revenue account
I also record the following:
A debit to COGS - expense account
A credit to Inventory - asset account.
I have two questions:
1) What journal entries are required if I need to convert an item, originally classified as inventory, into a business supply. (For example, a spool of filament - which is used as part of my printing service but also as part of my educational workshops and demos.)
2) What journal entries are required if I need to convert an item, originally classified as inventory, into a fixed asset (for example taking a 3d printer originally intended for resale and transferred for use in my 3d printing service or as a demo unit.)
Is it sufficient to record such a transfer simply by crediting the inventory asset account (by the cost at which I purchased it) and then either debiting the supplies expense or fixed asset account...or is there any end of year/tax reporting implications and/or further journal entries that need to be considered when performing such a conversion?
I have been searching the internet high and low for help with this but have not found anything useful. I have found your website to be very helpful in the past when I was learning about GST/HST, and am therefore hoping that you might be able to provide me with some guidance on this topic as well. My accounting knowledge goes back to OAC Accounting in Highschool...but that was over 20 years ago! Any guidance you can provide would be truly appreciated!
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