Sold Merchandise On Account & For Cash

A Company can sold merchandise either for cash / cheque or check or on account / credit to it customers. When merchandise or goods sold for cash, then the Journal Entry would be as shown below:

                                                          Bank a/c / Cash a/c  XXX

                                                                         Sales a/c   XXX

                                            (Merchandise or Goods Sold For Cash / By Check)

The above entry is enough under Periodic Inventory System while under Perpetual Inventory System, we need to update the value of inventory on daily basis, so we pass another entry in order to follow Matching Principle Gaap:

                              Cost of Sales a/c  XXX    (With Cost Of Merchandise Purchased)

                                                          Merchandise or Inventory a/c XXX

                                      (Cost Of Goods Sold Recorded To Match Revenues With Expenses)

Suppose, the company sold merchandise for Rs. 90000 for cash to one of its customer. The cost of the inventory is Rs. 60000. The company used the perpetual inventory system, then pass the journal entries for merchandise sold for cash during the accounting period.

For Inventory Sold For Cash / Bank

                             Accounts Receivable a/c  90000

                                                                        Sales a/c  90000

                                                           (Sold Merchandise For Cash / Bank)

To adjust the sale value of Inventory with the purchase price, the below entry is recorded at cost price of inventory as shown below:

                                    Cost of Sales a/c  60000

                                                                Inventory a/c  60000

                                                           (Cost of Goods Sold Recorded)

For Inventory Sold For Credit

A Company can also sold goods on credit or account. When goods or merchandise sold by the company on account or credit, then it is called inventory or merchandise sold on account. There are two Accounts involved in this Transaction. One is inventory or merchandise sold that is called Sales Account and other one is Accounts Receivable / Debtor to whom the company sold goods on credit basis. The entry is given below:

                                  Accounts Receivable a/c  XXX

                                                                          Sales a/c  XXX

                                                    (Merchandise or Goods Sold On Credit)

Again, if the company adopts perpetual inventory system, then in order to adjust the balance of inventory, we need to find out Cost Of Sales at which the goods are purchased and then compare it with the selling price of goods sold. So, we pass the following journal entry:

                                     Cost of Sales a/c  XXX

                                                                 Inventory a/c  XXX

                                          (Cost of Sales is Recorded for Goods Sold on Account)