Financial Accounting Fundamentals | Online Course Support

A company sells its products to a customer for $5,000 on account. The cost of the products sold is $2,000. Select the journal entries that are correct. (Assuming no other transactions.)


Correct answer. When inventory is sold, revenues are recorded for the price received from the customer with a corresponding increase in either Cash or Accounts Receivable, depending on whether payment was received at that time. Additionally, the Inventory account is decreased by the cost of the inventory that was sold and a corresponding expense (COGS) is recorded for the same amount. The revenues and COGS expense must be recorded separately and may not be recorded as a net number.

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