The JE for this would be:
Dr---Drawing
Cr---Inventory

As inventory decreases COGS also decreases.

hope this will help you.

yes there is a drawing in inventory. it happens actually when (say the business is a partnership) one of the partners take some goods. just debit the partner's drawing account and credit inventory or purchases.

dr. drawing xxx
cr. purchases xxx

*** when the closing inventory decrease, the cost of goods sold will increase. the increase in cost of good sold, in
effect, will decreases gross margin and net profit.

***the entry above on the other hand, will decrease the purchases so the effect will be the opposite.
decrease in puchases or beginning inventory will decrease cost of goods sold. the decrease in cost of goods sold will
then increase gross margin and net profit.

try to experiment on the statement of cost of good sold and income statement then see how the increase and decrease of a certain account will affect the gross margin and net income.

good luck.

whatever happens to inventory (begining or ending) there is a corresponding effect on COGS. COGS is never affected
by sales. take a look at this statement:

beg, inventory - 100
purchases 200
ending inventory (50)
_____________________
COGS 250

sale 400
COGS 250
------------------
GM 150
exps. 50
-----------------
NI 100

now, lets manipulate the data and increase the sale to 500.. the COGS will remain 250. only that GM will incease by 100.
ofcourse the inventory will decrease when there is sale that is because your merchandise was converted into cash but it never affects the COGS. yikoo was asking about the inventory effect on Inc. statement which i already showed.

whatever happens to inventory (beginning or closing) it will always affect the cost of good sold.

hope that helped. anyways, nice to have a conversation with you aakbar.
keep in touch :)

hi aakbar :)

ofcourse you will debit the COGS whenever you have sales because you are using the perpetual inventory method. i, on the other hand, used periodic system because yikoos question will be answered in this manner easily and clearly.

what im trying to say is that when the purchases account DECREASES, it will have a correspoding effect on COGS which is likewise to decrease. the decrease in COGS will increase the gross margin and net profit.

your COGS remains the same because you simple created a transaction and did not make a statement of COGS. besides im using the periodic system that's why the my entry dr. drawings, cr. purchases. if you use the perpetual method, you will have to make a different entry. but no matter what, it will always have an effect.

anyways,we have a subject that includes this topic (effects of increase and decrease of accounts), its called constructive accounting. im actually sick and tired of it let's talk about something else... hehehehehe!