Question about beginning inventory for a new LLC

(Last Updated On: March 1, 2021)

Question – If I invest in inventory at the start of my LLC and account it as beginning inventory, will I still be able to reduce assets and increase Cost of Goods Sold (COGS) as it sells?  I’m just unsure and confused because technically the LLC did not spend any cash to acquire it and was given through my own investment.

Answer – Yes, you can record the inventory on your LLC books as an equity transaction.  In other words, consider the inventory a contribution from the owner.  If you are using a double entry system, the entry is:
Debit Inventory
Credit Contribution from Owner

The inventory account is an asset account, so when you transfer the inventory to the LLC, you increase the asset and increase equity.  When you sell the inventory, you decrease inventory and increase COGS.