Nominal uses items/services to be used in invoices and purchases, which can managed under manage->items.

When you create an invoice you can select to sell an item, service or other.

• ‘Other’ is anything you want to sell which has not been defined before.
• ‘Service’ can be sold for a price and purchased (or paid) for a price, you cannot track inventory for service.
• ‘Item’ is the same as Service with the added functionality relating to ‘tracking’

When you purchase an item/service the account selected(expense or asset) for each item is debited (and the accounts payable credited).

If this is an item the stock is updated to add the number of purchased items.

If this is a tracked item, the asset account select is associated with the item type (to be used when later selling *, this happens only once in the first time you purchase this item type)

When you sell an item/service the account selected (sales) for each item is credited (and the accounts receivable debited)

If this is an item the stock is updated to reduce the number of items sold

If this is a tracked item, the item value is calculated as balance of asset account (*)/number of items in stock.  This amount is used to debit “Cost Of Sales” account and credit the asset (*) account.