How to Use Stock Cards for Sales & Purchases

Instructor: Martin Gibbs

Martin has 16 years experience in Human Resources Information Systems and has a PhD in Information Technology Management. He is an adjunct professor of computer science and computer programming.

What is in is out again. This lesson applies the First In First Out method of inventory and explains how to use stock cards to track sales, purchases, and returns of stock.

First In First Out

What goes in, must go out. If you sell cheese, would you sell only the cheese that you just received and let the earlier product mold on the shelf? A common way to keep track of inventory is the First In - First Out (FIFO) method. This assumes that you are pushing out the first stock that comes in. In other words, if you bought 5000 sour gummy bears in January, then 500 more in February, you must sell the items from January first. In fact, you also need to account for the unit cost from January first also.

Stock Cards

In FIFO accounting, one option of keeping track of inventory is the stock card. It is a sheet that tracks purchases, sales, returns, and other drawings. It tracks the unit price and inventory counts. Let's consider the following transactions for our grocer. For simplicity, the focus is on one product, sour gummy bears. The transactions are for July, and to further help in understanding, we've included only the unit price of the goods (how much it cost us per unit). You will have to log the actual sale price in other accounts, but the focus here is solely on the stock card.

Date Transaction Qty Unit Cost Amount
July 1 Inventory On Hand 10 1.75 17.50
4 Purchase from Wonka's Wholesale Invoice 23 250 1.90 475
10 Sales - Invoice 933 180 2.25 405
12 Purchase from Wonka's Invoice 25 250 2.25 228
20 Returned to Wonka's AN3 25 1.90 47.50
21 Sales - Invoice 934 210 2.25 525
22 Sales Return to Customer AN12 5 2.25 11.25
30 Withdraw product for advertising 5 2.25 11.25
31 Withdraw product for personal use 5 2.25 11.25

The above table is nice since it shows our transactions, but we need to see how units flow in and out of inventory, and what the price was when they were flowing in and out. This is where the stock card comes in handy. You can show more detail and actually track the flow of goods in and out of the company.

Fill Out the Card

Stock card FIFO

Look at the header for the stock card. It has more categories than the table, such as 'In' and 'Out' with subcategories under each and 'Balance' to show where you are at with quantities and costs. You can create this fairly quickly in Microsoft Excel or other accounting software.

Now we can fill out the card based on our purchases, sales, and drawings data above. In the FIFO method, the first things in are the first things out. Take a look at the Sales on July 10. We are assuming that the first 10 items are the ones we sell. That means we also have to use the UNIT COST at that time (1.75). The rest will have the new unit cost (2.25).

This can be confusing, so take another look at the purple highlighted area, showing these transactions. The very first items IN have to be the first items OUT. To show this, we have separate entries for each. Our customer doesn't care since they get all the product, but we have to log it correctly for FIFO guidelines.

The balance for July 10 is 80. Our starting inventory was 10, but we purchased 250 more. We then sold 180 units.

260 - 180 = 80.

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