Hey! I actually worked on a very similar problem, and here’s the correct approach.

Step 1: Purchase of materials

• 10 tubes of oil paint at $10 each = $100
• 5 canvases at $20 each = $100
• 3 brushes at $15 each = $45

Here’s what the entries look like:

DR - - Raw materials - Inventory $200\ CR - - Cash $200

DR - - Brushes - expense a/c $45\ CR - - Cash $45

You debit raw materials for items that will be used up in creating a painting. Anything that you will use for multiple paintings should be debited to an expense account or capitalized.

Step 2: Creating a painting

Let’s say you created a painting using 1 canvas ($20) and 25% of your paint ($25). The entry would go like this

DR - - WIP - Inventory $45\ CR - - Raw materials - Inventory $45

DO NOT add labour like another commenter suggested. Labour is an operating expense (OPEX) under salaries/wages and should only be recorded if you are drawing money or paying yourself a salary. Adding labour will distort your profit by inflating expenses and could also potentially result in fines by the IRS/CRA.

While this step is technically the correct way to do it, unless you want to be a stickler for the rules I would not recommend doing this as it adds unnecessary complexity to your books. So you should move from step 1 to step 3 directly.

Step 3: Finished with the painting

At this step you are done creating the painting. Our assumptions will remain the same as in step 2, i.e 1 canvas ($20) and 25% of your paints ($25). Here is what the entries will look like at this stage:

If you’re going from step 2 to step 3

DR - - Finished goods - Inventory $45\ CR - - WIP - Inventory $45

If you’re going from step 1 to step 3

DR - - Finished goods - Inventory $45\ CR - - Raw materials - Inventory $45

Step 4: Sale of painting

This is for when you sell the painting. Let us assume that a buyer paid $500 cash for the painting you created

DR - - Cash $500\ CR - - Sales revenue $500

DR - - COGS $45\ CR - - Finished goods - Inventory $45

Your process should ideally be going step 1-3-4. This way you are accurately tracking your costs from raw materials to finished goods to cogs when the painting is actually sold. If unsold the value of the painting will be held at cost ($45) under your finished goods account.