Goods Distributed as Free Samples

Goods distributed as free samples are products given away by a business usually for promotional reasons.

The goods distributed as free samples do not have a sales value and therefore cannot be recorded in the accounting records as sales.

The free product samples do however have a cost which needs to be removed from the cost of sales account and recorded as an expense. The expense account used will depend on the reason the goods were distributed as free samples and might include for example sales and marketing, promotion, advertising, charity or simply a free samples expense account.

Goods Distributed as Free Samples Example

Suppose a business gives away free samples costing 1,500 to customers in order to promote a new product range it is launching.

The accounting records will show the following bookkeeping entries to reflect the goods distributed as free samples journal.

Goods Distributed as Free Samples Journal Entry
Account Debit Credit
Promotion expenses 1,500
Purchases 1,500
Total 1,500 1,500

Goods Distributed as Free Samples Journal Entry Explained

Debit Entry

The debit entry represents the cost of the free product samples to the business. In this case the amount is treated as a promotional expense as the samples were given to customers to promote a new product.

Credit Entry

In this example it is assumed that the business operates a periodic inventory system so the credit entry reduces the purchases expense which in turn removes the cost of the samples from the cost of sales account.

It should be noted that in a perpetual inventory system the credit entry would be direct to the inventory account.

The Accounting Equation

The accounting equation, Assets = Liabilities + Equity means that the total assets of the business are always equal to the total liabilities plus the equity of the business. This is true at any time and applies to each transaction.

The accounting equation for the goods distributed as free samples transaction is shown in the following table.

Goods Distributed as Free Samples Accounting Equation
Assets = Liabilities + Equity
None = None + Purchases – Expense
0 = 0 + 1,500 – 1,500

In this example purchases has decreased by 1,500 which increases net income, retained earnings and equity, and promotional expenses have increased by 1,500 which decreases net income, retained earnings and equity. The net effect on equity of the two entries zero.

The transaction is simply a reallocation of the cost of the products distributed as free samples from cost of sales (purchases) to promotional expenses.

Popular mdct.ru Examples

This goods distributed as free samples journal entry is one of many bookkeeping entries used in accounting, discover another at the links below.

Goods Distributed as Free Samples November 28th, 2017Team

You May Also Like


Related pages


accounting intangibleswhat is objectivity principle in accountingadvances from customers balance sheetsubsidiary ledger definitionaccounting for convertible debenturesjournal entry template excelbookkeeping journal entriesexcel formula mortgagetotal variable cost formuladifference between markup and profitnsf cheque definitionclosing entries for accountingtill float check sheetnpv excellsuspense in accountingwhat accounts have a normal debit balanceformula for accounts receivablefuture value of growing annuityannuity formulacalculate quick ratio formuladepreciation slmdirect labour variancewhat is the formula for quick ratiofuture value of an annuity exceldupont return on equityaccounts payable meaning with exampleoperating capital turnoverdifference between accounts payable and bills payablewhat are adjusting journal entriesdeferred tax assets and liabilities examplesunclassified balance sheetaccounting equation templatedebit side of trial balancesample of general ledger sheetwhat is an imprest accountlink between balance sheet and income statementmaterial price variance definitionjournal entry for sale of inventorytotal variable costs formuladebit memo journal entrywhen is the balance in a prepaid expense account reducedpredetermined overhead allocation rateexcel formula for npvwhats gross profitdouble decline balance depreciationcalculating annuity paymentsmeaning of accrued expensescalculating payback period in excelusing pv in excelpoc method of accountingbank reconciliation statement procedureaccounts payable basicspresent worth excelpercent of markup calculatorgrni reporthow do you calculate variable costhow to figure contribution margindefinition of retained earningreducing balance interest calculatorperpetuity vs annuitydepreciated assetswhat are consumable storeshow to calculate straight line amortizationsingle column cash book formathow to calculate future value of annuityperpetual inventory journal entries examplefree payment voucher templatejournal entry for prepaid insurancet charts for accountinghorizontal analysis of cash flow statementtrial balance template exceldepreciation journal entries examplesinventory turnover formula accountingannuity caloverstatement examplesreducing balance loan calculator excel downloadproveit accounting test