We learned shipping terms tells you who is responsible for paying for shipping. One to record the sale to the customer and one to record the usage of inventory as a cost of goods sold. Notice how each transaction has 2 entries. To record cost of merchandise sold to customers. The journal entries to record the sale and cost of goods sold for each date would be: Date
on May 21, Smith sold $20,000 of merchandise for cash with shipping terms FOB Shipping Point.On May 4, Smith sold $30,000 of merchandise with credit terms of 2/10, n30 and shipping terms FOB Destination.To illustrate the perpetual inventory method journal entries, assume that Smith Company made two sales of merchandise to Hanlon Food Store: We will debit the expense Cost of Goods Sold but what was it we were selling? Right! Merchandise or merchandise inventory so we will reduce (credit) merchandise inventory since we no longer have the goods. We begin learning this concept by having cost of goods sold amounts provided but in a later section, you will learn to calculate the amount yourself. Remember, cost of goods sold is the seller’s cost for the items they are now selling to a customer and is NOT the selling price. To record sales, we will debit Cash or Accounts Receivable, depending on payment, and credit Sales Revenue.īut, we must also match the revenue and expenses incurred (remember the matching principle?) and we will record the expense cost of goods sold. Sales can be cash or have credit terms (on account) using Accounts Receivable since we will receive money from the customer in the future. Sales are recorded in a Sales Revenue (or Sales) account and is the price we charge to the customers. Watch this video on seller entries before we look at them in more detail. Even though we do not see the word Expense this in fact is an expense item found on the Income Statement as a reduction to Revenue. Cost of goods sold is not the price charged to customers but what a company paid for the goods they are now selling. Notice how they increase with a debit and decrease with a credit even though they are revenue accounts.Ĭost of goods sold is exactly what the account name reads: it is the cost of the goods merchandise inventory) to the seller that is now being sold to customers. *Sales discounts and sales returns and allowances are contra-accounts. The seller will use the following accounts: Name Remember, under the perpetual inventory method, we used a combination of 3 accounts (Cash, Inventory and Accounts Payable) on the buyer side. The accounting is very different for sellers than for buyers.
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