How Purchase Invoices Affect the Income Statement Based on Product Type (Inventory vs. Non-Inventory)

An explanation of how purchase invoices are reflected in the income statement based on product status (inventory or non-inventory).

Answer:

Purchase invoices are reflected in the income statement based on product status as follows:

1. Product status “Inventory”:

   • Upon purchase:
     • The quantity is charged to the inventory account.
     • It is not charged to the income statement until after the sale.
   • Upon sale:
     • The product value is transferred from the inventory account to the cost of goods sold account.
     • The value will appear in the income statement upon creating a sales invoice.

2. Product status “Non-Inventory”:

   • Upon purchase:
     • The value is directly reflected in the expense account associated with the product.
   • Impact:
     • The product value is directly displayed in the income statement immediately upon creating a purchase invoice.

Additional Notes:

• Be sure to confirm the product status when setting it up in the system to ensure accounting entries are recorded correctly.