Purchases and sales simplified: How to record goods, assets, stationery and rent received

Are you confused by the words your accountant uses? Many small business owners and students find themselves staring at a pile of receipts without a clue where to put them. You might think that every time you buy something, it is just a “purchase”, and every time money comes in, it is a “sale”. However, using the wrong labels in your books can lead to huge tax mistakes and a very messy bank balance.

Imagine telling the tax man you bought a new delivery vehicle but recorded it in the Purchases account by mistake. Instead of your books showing an expensive asset in the balance sheet that adds value to your company for years, you now have a huge, one-time expense in your income statement.

This error makes it look like your business spent all its profit on stock to sell, when you actually bought a vehicle to keep. One is a cost that disappears once the goods are sold, while the other is a big item the business now owns and uses.

If you cannot tell the difference between buying stock for your shop and buying long-term equipment, your profit numbers will be completely wrong. This article will show you exactly how to organise your records so you never have to worry about these technical questions again.

15 Simple ways to record your business transactions correctly

1. Using the Purchases account for goods you intend to sell

The Purchases account is a very special place in your books. You must only use this account when you buy items that you plan to sell to your customers to make a profit. For example, if you own a toy shop, buying dolls and board games from a supplier is a “purchase”. These items are often called “stock” or “inventory”.

When you use the Purchases account, you are telling your business that these items are for resale. You do not plan to keep them for a long time. They are going to sit on your shelves until a customer walks in and buys them. This is the only time you should ever use this specific word in your accounting records to avoid making a mess of your profit and loss report.

2. Using the Sales account for your main business income

The Sales account is where you record the money you earn from your main business activity. If your business is a bakery, every loaf of bread or cake you sell goes into the Sales account. This account represents the core reason your business exists and how it generates its primary wealth.

It is important to remember that not every bit of money coming in is a “sale”. If you sell an old desk from your office, that is not a regular sale for a bakery. Keeping the Sales account strictly for your main goods helps you see if your actual business is growing or if you are just selling off your equipment to stay afloat.

3. Recording assets instead of purchases

An asset is something expensive that your business plans to keep and use for more than one year. Common examples include computers, delivery vans, and heavy machinery. When you buy a new laptop for your office, you do not put it in the Purchases account because you are not planning to sell the laptop to a customer next week.

Instead, you record this in an Asset account. This tells everyone that the business now owns something valuable. Assets are listed on a “Balance Sheet” rather than just being taken away from your profit immediately. This is because a van still has value even after you have used it for a few months, whereas a sandwich bought for lunch is gone forever.

4. How to handle buying stationery and small office supplies

Stationery includes things like pens, paper, envelopes, and ink for your printer. Even though you “purchase” these items at a shop, they do not go into the Purchases account. They are not for resale; they are things you use up to keep the office running smoothly.

These items are called “expenses”. You should have a specific account in your books called “Stationery” or “Office Supplies”. Because these items are usually cheap and get used up quickly, they are recorded as a cost in the same year you buy them. This keeps your records tidy and makes it easy to see how much you are spending on basic office tools.

5. Dealing with renting office space in your building

If you own a building and have a spare room, you might allow a tenant to rent a vacant office space from you. While this brings money into your business, it is very important to remember that this is not a “sale”. Renting out space is extra income for you, but it is not the main reason your business exists, such as selling clothes or fixing cars.

You should record this money in an account called “Rent Received” or “Rental Income” rather than the Sales account. If you put it in the Sales account, it would look like you sold more of your actual goods than you really did. Keeping this separate helps you and your financial advisors see exactly how much money is coming from your main work versus how much is coming from your property.

6. Recording one-off services using company equipment

Sometimes, your business might do a small job that is not part of its usual work. For example, if you have a high-quality printer for your own flyers, a neighbour might pay you $10 to print their posters. Even though you are using your company equipment, this is not a regular “sale” because you are not a printing shop.

In this case, you should record the money in an account called “Other Income” or “Sundry Income”. This keeps your main Sales figure clean. It shows that while you made some extra money, it was a one-off event and not a part of your regular business strategy that you expect to happen every single day.

7. Using a business vehicle for a delivery service

If your business owns a van to move your own goods, but you decide to help a friend move house for a fee, you are offering a one-off service. This is similar to the printing example above. You are using a business asset (the van) to make a little bit of extra cash on the side.

Because you are not a professional moving company, you should not put this money into your main Sales account. Instead, put it into “Other Income”. You also need to be careful with the petrol and insurance costs. Since the van was used for a special job, the money earned helps cover those costs, but it must be labelled correctly so it does not look like your main business has suddenly changed.

8. Why you must separate stock from equipment

Mixing up stock (things to sell) and equipment (things to use) is one of the biggest mistakes a student or small business owner can make. Stock is meant to leave the business quickly. Equipment is meant to stay and help you work.

If you treat a new car like a “purchase”, your profit for that month will look much lower than it really is. This is because the whole cost of the car is being taken away from your earnings at once. By recording it as an asset, you spread the cost over several years, which is a much fairer way to look at your business performance.

9. Understanding the colour of your money with “Sundry” accounts

In accounting, the word “sundry” is used for small, unusual items that do not fit anywhere else. It is like a “miscellaneous” folder for your money. If you have a very small income or cost that happens only once a year, you can use a Sundry account.

This helps keep your main accounts like Sales, Rent, and Stationery clear of clutter. However, do not put too many things in here. If you use the Sundry account for everything, you will not be able to see where your money is actually going. It should be used sparingly for those odd jobs or tiny costs that do not deserve their own special heading.

10. Labelling your transactions for better tracking

Correct labelling is the secret to a happy accountant. When you record a transaction, you should always include a short note about what it was for. Instead of just writing “$50”, you should write “$50 – Office Pens” or “$50 – Goods for Resale”.

This simple habit makes it much easier for teachers to grade your work or for financial advisors to help you with your taxes. It turns a list of numbers into a story of how your business is doing. If you are ever unsure, ask yourself: “Am I going to sell this item, use it up, or keep it for a long time?” The answer will tell you exactly which account to use.

11. Recording the purchase of raw materials

If you make things instead of just buying and selling them, you will need to buy raw materials. For a dressmaker, this would be fabric and thread. These are recorded in the Purchases account because they are used to create the final product that you will sell.

Even though a roll of fabric looks different from a finished dress, it is still “stock” in a different form. By putting it in the Purchases account, you are linking the cost of the materials directly to the money you will make when the dress is sold. This is a key part of calculating your “Gross Profit”.

12. How to handle returns of goods

Sometimes, the items you bought for resale are not right, and you have to send them back to the supplier. You should not just delete the original entry in your Purchases account. Instead, you use a “Purchases Returns” account.

This account tracks how much money you got back from suppliers. It is important for business owners to see this number. If it is very high, it might mean your supplier is sending you bad quality items. Keeping this separate from your main Purchases account helps you manage your business relationships much better.

13. Dealing with sales returns from customers

Just as you might return goods, your customers might return things to you. When a customer brings back a toy because it is broken, you record this in a “Sales Returns” account. This is better than just reducing your Sales figure directly.

By using a Sales Returns account, you can see if there is a problem with what you are selling. If many people are bringing items back, you need to know why. This clear way of recording helps you stay organised and shows you the “Net Sales”, which is the real amount of money you get to keep after all the returns are finished.

14. Accounting for utility bills like electricity and water

Electricity, water, and heating are essential for any office or shop. Like rent, these are services that you use up as you go. They are never recorded in the Purchases or Sales accounts. Instead, they go into a “Utilities” or “Light and Heat” expense account.

These costs can change depending on the season, so tracking them separately helps you plan your budget. If you see that your heating bill is suddenly much higher, you can investigate if there is a leak or a broken heater. This level of detail is what separates a successful business owner from someone who is just guessing.

15. Closing the books at the end of the year

At the end of the year, all your accounts need to be summarised to see if you made a profit or a loss. The Purchases and Sales accounts are “closed” into a special report called the Trading Account. This is where you compare the cost of what you bought to the money you made from selling it.

Assets, like your van and computers, do not get closed in the same way. They stay on your Balance Sheet and move into the next year. Understanding this difference is the final step in mastering your business accounts. It ensures that you start every new year with a clear picture of what the business owns and what it needs to do to be successful.

Conclusion

Recording your business transactions correctly is not just about following rules; it is about understanding your business. By knowing when to use the Purchases and Sales accounts and when to label something as an asset or an expense, you gain total control over your finances. Whether you are a student learning the ropes or a business owner trying to stay organised, these simple steps will make your life much easier. You will be able to talk to your financial advisor with confidence and keep your records in a way that makes sense to everyone. Remember, a tidy set of books is the foundation of a healthy, profitable business.

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