Meanings of Inventory Accounts Part I

Meanings of Inventory Accounts Part I

So that you can record all business transactions in your company, you need an accounting system with an extensive account system . This enables you to structure both your liabilities and your asset positions accordingly. You can also separate income from expenses, to name just a few examples. This system is based on a division into two types of accounts, the profit accounts and the inventory accounts .

What are inventory accounts?

According to, inventory accounts represent the current inventory of a specific type of liability or asset. This can already be deduced from the name. The inventory accounts reflect the items on a balance sheet . They are therefore to be understood as a continued balance sheet. If the assets in a company change, the corresponding or affected inventory account is always adjusted. You have to differentiate between the active and passive inventory accounts . Both accounts contain all of the company’s capital and asset items. They are continuously recorded on these. At the end of a financial year, the inventory accounts are transferred to the official balance sheet .

Why are there inventory accounts?

As stock accounts accounts are called, which emerge from the balance sheet . Inventory accounts are accounts that relate purely to inventory on your balance sheet . In order to be able to differentiate precisely between assets and debts, the inventory accounts are therefore divided into asset accounts and liability accounts. Only in this way is it possible for you to be able to make an accurate booking and recording of all your business transactions.

Why are they called inventory accounts?

Inventory accounts get their name because they represent the current status of a company’s assets or debts at all times. Everything that leads to a change in an inventory in your company is posted to the inventory account. An opening balance is taken from the balance sheet from the previous fiscal year. In the course of the new financial year you then have to post all business transactions there.

Types and number of inventory accounts

There are two different types that you have to distinguish. The two types are called active inventory accounts and passive inventory accounts.

Difference between active accounts and passive accounts

Active inventory accounts are also known as active accounts . In this type of inventory account you have to record all processes that affect the assets of your company . These assets include both current assets and fixed assets . The following examples should be given for the active inventory accounts.

  • Cash on hand (such as the amount of cash in your till)
  • Land (all land belonging to the company)
  • Machines and technical systems
  • Raw materials for production

Active inventory accounts are always on the left-hand side of the balance sheet , i.e. on the assets side .

On the passive accounts, even liability accounts called, you need the capital of your company represent. This capital includes your company’s liabilities and equity . Examples of passive inventory accounts are.

  • Payables from services and deliveries
  • Mortgages / Loans
  • accruals

Passive inventory accounts are always on the right-hand side of your balance sheet , i.e. on the liabilities side .

Posting to inventory accounts

A large number of business transactions occur in a company . You have to post these to the respective inventory accounts , either to the asset or liability account . A business transaction is an act or event that affects the assets of your company . These business transactions can be, for example, purchases of goods, sales of goods, taking out loans, paying salaries to employees, etc. If there is a receipt for a business transaction, such as an invoice, you must enter this receipt in your bookkeeping .


So that you can manage your accounting correctly and record all business transactions correctly, it is worth using software to record receipts . So you have everything stored centrally in one place and can keep all receipts in compliance with GoBD .

Receipts on the asset account

When you receive amounts on the active account , you have to post these additions on the debit side , the active side. This could be the purchase of a machine, for example. However, if you sell a machine, for example, this is to be posted as an outflow in credit on the liabilities side.

Receipts on the liability account

For example, if you take out a loan , then it is an access in credit , i.e. on the passive account . If you pay an invoice, this amount is deducted from the passive account and you have to book this outflow in the debit.

You record every change in the assets of your company in fictitious accounts. Here are a few examples for you.

  • Acquisition of a new account is recorded in the “Land” account.
  • Income that you generate from the sale of products goes to the “sales revenue” account .
  • All payments of wages and salaries are recorded in the “wages and salaries” account.
  • You can find the amount of all loans that are currently up-to-date in the “Loans” account .

You can compare all of these accounts with your checking account. However, these are only fictitious accounts. To do this, you use a so-called chart of accounts , such as the standard chart of accounts SKR03. This chart of accounts is also used for the inventory accounts so that you can present everything in a structured and clear manner.

Inventory Account 1