What is the Accounting Entry for Giving Away a Free Sample?

by Anonymous

Q: What entry will be passed in the general journal for goods taken as a free sample?


A: 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?

free sampleThe 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.

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Founder of Accounting Basics for Students


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Comments for What is the Accounting Entry for Giving Away a Free Sample?

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Clarification - Opening Stock Account
by: Anonymous

If goods are distributed as free sample, can the opening stock a/c be credited instead of the purchase a/c?

Not an "opening stock" account but an "inventory" account - yes.

If you're running a perpetual inventory system then you would keep an inventory account and adjust this whenever goods are distributed as a free sample - you would reduce the balance of the account through a credit entry.

The purchases account is if you are using a periodic inventory accounting system.

See the lesson on perpetual and periodic inventory for more details and examples of the different scenarios and accounts used.

Hope that helps!

- MC (founder/editor)
Entry for a Product Given to an Employee
by: Anonymous

what entry for product give to employee?

A: You treat this as an expense and remove the product:

Dr Cost of Sales
Cr Inventory

By doing the entry above you are recording a product expense and reducing the inventory (asset).
free Pack per case calculation in profit and loss
by: Bilal

Hi,
If we get 1 case on purchase of 6 cases and sell to one client with 1 bottle per case and sell to other client 1 case with less amount of 1 bottle, how can we calculate profit and loss?
Free Sample
by: Albert US

We have a sales limit such that if the customer buys the product for $100 we give him one free product, the product we give is not a discount it's just a free item. So my question is how can I record that free item. Thanks.

The free item should be in your accounting books as an asset - part of your inventory. Let's say it cost your business $3. Each time you give away this product as a free sample you would expense it.

You would journalize this as follows:

Dr Cost of Sales (expense) $3
Cr Inventory (asset) $3

Since your business is selling inventory it has a cost of sales expense against sales to work out gross profit. So I would include the expense of free samples under cost of sales (as above).

Best,
Michael Celender
Free Sample - Data/SMS
by: Michael

Hi anonymous,

If the free item wasn't an asset. i.e. free internet data/SMS then if it did not cost your company anything additional to provide that free service then I would not record anything.

If it did cost the company something then you have to just work out what asset was used up to provide the service. For example, did it require some cash, or using up an item of inventory (a digital asset)? If so you could take the cost of delivering that data/SMS service and record this as an expense against the existing asset as shown in the answers above.

Best,
Michael Celender
TAX
by: Anonymous

FREE GOODS & SAMPLES ARE TAXABLE OR NONTAXABLE?
Accounting
by: Anonymous

Just became alert to your blog through Google, and found that it's truly informative. I will appreciate if you continue this in future. Many people will be benefited from your writing. Cheers!
Accounting Treatment of Free Samples
by: Anonymous

First the amount of goods distributed as free samples should be deducted from purchases for computing COGS, then the cost of free samples should be debited to P&L A/C......
journal entry for goods as free samples
by: Anonymous

The trader gives away the sample goods out of his own risk in order to enhance the sales of his products in future. So should not the free samples be debited to the drawings account of the trader???????
Account
by: geetha

what entry will be passed for purchase of CNC Machine tip and insert purchase and Tools for job work only not manufacturing unit
Free samples
by: Anonymous

Hi

What would the journal be if the free item wasn't an asset. i.e. free internet data/sms etc???

Thanks
JOURNAL ENTRY FOR GOODS DISTIBUTED FREE TO EMPLOYEES
by: Anonymous

Sir
Please give the journal entry for goods distributed free to employees of the concern/firm/corporation concerned

Debit Goods distributed
Credit Inventory/Purchases

You could use another name to describe the "goods distributed" account, such as "goods consumed" or even "employee costs" if you like. Whatever you call it, the idea is that it would be an expense and this expense would not form part of the cost of goods sold (cost of sales) as these goods were not sold. That expense ("goods distributed" or "employee costs") would go in your income statement but would not form part of cost of sales or the gross profit... (editor)
Free sample
by: Geoffrey

What does free sample mean? I want to know that in details and give an example.

Editor: A free sample is a free product you give away. Like someone at the supermarket is giving free samples of a new coffee product, for example...
Samples
by: Ishaque

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GOODQUESTION
by: Anonymous

I LIKE IT......

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