The Journal Entry For The Sale Of Merchandise With A
Summary:
COGS or cost of goods sold is a term that refers to the direct expenses incurred in producing or acquiring goods to be sold to customers by a manufacturer or retailer. It is deducted from sales revenues to calculate gross profit and higher COGS results in lower margins. This value can be calculated by subtracting the ending inventory from the sum of beginning inventory and purchases. The cost of goods sold in a retail setting includes the price paid to the manufacturer or wholesaler as well as shipping. The cost-to-retail ratio can be calculated to assess the value of inventory. COGS is typically included in a company's monthly profit and loss statement. The value of inventory at the start of a period is important in determining COGS and the weighted average cost is used when an item is sold.
To record the sale of merchandise with a retail value of $4,700 and a cost of $3,440 to Liu Corporation, invoice dated January 13, the following journal entry needs to be made:
Debit: Accounts Receivable—Liu Corporation (106.5) - $4,700 Credit: Sales (413) - $4,700
Debit: Cost of Goods Sold (502) - $3,440 Credit: Merchandise Inventory (119) - $3,440
These entries reflect the increase in accounts receivable and sales, as well as the corresponding recognition of the cost of goods sold and reduction of merchandise inventory for the goods sold to Liu Corporation.
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