Owner's Equity & Selling Inventory

[scottyf11]

Hello!

I first want to thank everyone who participates in this forum. It seems like there are a lot of good folk here. So here is my situation:

I just started a business where I buy stuff at Flea Markets and resell them on my webstore. I was doing this for a while before I started my business (LLC) so a lot of the inventory I am now selling was bought with personal money. I am working on my books, and what I have been doing is when I add an item to my inventory ledger I am increasing owner's equity as well. Am I suppose to decrease owner's equity when I sell the asset or should increase cost of goods sold? I'm not paying myself for the asset that was purchased so I don't think I should increase the expense. Is the right way to decrease owner's equity? Am I doing it right by increasing owner's equity when I add the asset to inventory?

Thank you all for your help. Oh and the business is an LLC in Massachusetts.

-Scott

 

[nomez]

owner equity must be

 

[Alonso8100]

No.That's will be send negative sign in the market.I think should be considering repurchasing the issue shares in the market.This will be send positive sign in the market.

 

[mackwaa]

I am working on my books, and what I have been doing is when I add an item to my inventory ledger I am increasing owner's equity as well.

Correct.

Am I suppose to decrease owner's equity when I sell the asset or should increase cost of goods sold?

You should adjust Cost of Goods Sold.

CoGS = Opening Stock + Stock Purchases - Closing Stock

When goods are sold the amount of Closing Stock you have reduces (thus increasing total CoGS)

Is the right way to decrease owner's equity?

No (see above)

Am I doing it right by increasing owner's equity when I add the asset to inventory?

Yes. You are effectively selling these goods to your company in exchange for an increased share of the ownership in that company. NB when you do your personal finances you need to record sale of those goods to your company (the simplest way is to record them as sales at the same price in which you purchased them).

 

[bklaird]

HI! When you increase COGS you are in effect decreasing Owners Equity because COGS is an expense. Expenses decrease (and revenues increase) owners equity and this happens when you close your books in a manual system or when you pull up a balance sheet in a computerized system. In other words, Revenues minus expenses equal net income and net income increases equity. Equity is made up of what you put into the company plus all the net income over the life of the company minus everything you take out (ex. dividends)