| Inventory is not a second currency. Multiple currencies are handled using Exchange loss/gain accounts.
I will try running your example from scratch. You begin business with $100 capital which is deposited to your bank account. I am using Cr for credit, Db for Debit 1. Starting capital: Capital Cr $100, Bank Db $100 2. Purchase widgets worth $50: Bank Cr $50, Inventory Db $50 3. You sell half of this inventory (valued $25) for $75 in cash: Sales Cr $75, Cash Db $75 Inventory Cr $25, Cost of goods sold Db $25 4. You sell rest of your inventory on credit to John for $110: Sales Cr $110, Accounts Receivable-John Db $110, Inventory Cr $25, Cost of goods sold Db $25 5. You pay $30 salaries via cheque: Bank Cr $30, Expense-Salary Db $30 At the end of all this your PL (profit loss statement) would look like this Sales: $185 (110 + 75) Cost of goods sold: $50 (as you sold all of the inventory) Gross profit = sales - cost of goods sold = 185 - 50 = $135 Expenses = $30 (salaries only) Net profit = gross profit - expenses = 135 - 30 = $105 Your balance sheet at the end of all this will be : Capital: Cr $100 Accumulated profit: Cr $105 Bank: Db $20 Cash: Db $75 AR John: Db $110 Inventory: 0 (as you sold all). Note the balance sheet balances nicely as Capital + Accumulated profit = bank + cash + AR + inventory |