Journal entry for goods sold for cash

Introduction

In merchandising business, we will have a lot of transactions of the goods sold for cash. Likewise, we need to make the journal entry for the goods sold for cash in order to account for the cash inflow to the business as well as to account for the sales revenue that we have earned.

In the periodic inventory system, we need to only record the sales revenue as well as the cash received for the journal entry of the goods sold for cash. However, in the perpetual inventory system, we also need to record the cost of goods sold as well as the reduction of inventory goods when we make the sale.

For the goods sold on credit, the journal entry is similar. The difference is that we need to record the accounts receivable instead of the cash account in the journal entry of goods sold since we won’t receive the cash immediately for the credit sale. And of course, we will also need to record the accounts receivable collection when we receive the cash payment later.

Journal entry for goods sold for cash

We can make the journal entry for goods sold for cash by debiting the cash account and crediting the sales revenue account.

This journal entry of the goods sold for cash will increase both the total assets on the balance sheet and total revenues on the income statement.

At the same time, if we use the perpetual inventory system, we also need to record the cost of goods sold and the reduction of the inventory goods that we have sold too.

In this case, we can need to make another journal entry for the cost of goods sold and the reduction of the inventory with the debit of cost of goods sold and the credit of the inventory as below:

This journal entry of the cost of goods sold will increase the total expenses on the income statement while decreasing the total assets on the balance sheet.

Goods sold for cash example

For example, on January 1, we have sold $5,000 of goods for cash. This $5,000 of the goods sold had an original cost of $3,000 in the inventory account. And we use the perpetual inventory system to manage the inventory in our company.

In this case, we can make the journal entry for the $5,000 goods sold for cash by debiting the $5,000 into the cash account and crediting the same amount to the inventory account.

At the same time, as we use the perpetual inventory system, we also need to make the journal entry for the $3,000 cost goods sold as below:

Journal entry for goods sold on credit

If we sell goods on credit instead, we can make the journal entry for goods sold on credit by debiting the accounts receivable instead of cash as below:

And we also need to record the cost of goods sold and the reduction of the inventory goods if we use the perpetual inventory system. Basically, it is the same as the above for recording the goods sold under the perpetual inventory system.

For example, if the $5,000 of goods sold above is on the credit instead of cash, we can make the journal entry for the $5,000 goods sold on credit as below:

And later, when we receive the cash payment for the $ 5,000 goods sold on credit, we can make the journal entry for this $5,000 as the accounts receivable collection as below: