What is the Accounting Entry for Giving Away a Free Sample?
Q: What entry will be passed in the general journal for goods taken as a free sample?
The first thing to work out here is whether free samples would even be recorded in the accounting records. In other words, do free samples qualify as assets?
The way to work out a question like this is to go back to the basic definition of an asset
and its recognition criteria.Remember, an asset is a possession of a business that will bring the business benefits in the future, or basically anything that will add future value to your business.And the full test of whether something is an asset is:
1. DOES YOUR BUSINESS OWN/CONTROL IT?
2. WILL IT BRING YOUR BUSINESS BENEFITS IN THE FUTURE?
3. CAN YOU VALUE IT ACCURATELY?
Based on the above criteria, free samples should be classified as assets with a value and kept in the accounting records.
The value of the free samples would be whatever it cost your business to buy them or get them made.
The journal entry for recording the free samples when you received them would be:
Dr Free Samples (asset)
Cr Bank / Creditor
Later, when you give away free samples to the public, you would record the following:
Dr Free Samples Consumed (expense)
Cr Free Samples (asset)
The basic idea in the above entries is that first you have these free samples in your records as assets. When you give them away you cancel the assets and record the expense or loss related to its use or consumption. The amount of the expense or loss is equal to the value of the free samples given away.Related Tutorials:
- Michael Celender
Founder of Accounting Basics for StudentsReturn to Full Accounting Questions and Answers (Advanced Topics)