JournaldrillCash sale
For a cash sale, debit Cash and credit Service Revenue (or Sales Revenue). If you sell merchandise under a perpetual inventory system, make a second entry for the cost: debit Cost of Goods Sold and credit Inventory for what the goods cost you.
Syntax
Dr Cash / Cr Sales Revenue; then (merchandise, perpetual) Dr Cost of Goods Sold / Cr Inventory| Part | What it is |
|---|---|
Cash | Asset debited for the amount received, including card or check payments deposited the same day. |
Service Revenue / Sales Revenue | Revenue credited at the selling price. |
Sales Tax Payable | Liability credited for any sales tax collected, which is not revenue. |
Cost of Goods Sold | Expense debited for the cost of merchandise sold (perpetual only). |
Examples
Dr Cash 3,000 / Cr Service Revenue 3,000Result: Assets up 3,000, revenue (equity) up 3,000
A consultant is paid 3,000 on the spot for work done.
Dr Cash 1,500 / Cr Sales Revenue 1,500; Dr Cost of Goods Sold 900 / Cr Inventory 900Result: Assets up 600 net, gross profit 600
Goods that cost 900 are sold for 1,500 cash under a perpetual system.
Dr Cash 1,070 / Cr Sales Revenue 1,000, Cr Sales Tax Payable 70Result: Assets up 1,070, revenue up 1,000, liabilities up 70
7% sales tax collected is a liability owed to the state.
Common mistakes
- Recording the whole receipt as revenue when it includes sales tax: the tax collected is a liability, not sales.
- Forgetting the cost side on a merchandise sale: under a perpetual system every sale needs the Dr COGS / Cr Inventory entry at cost.
- Crediting Inventory at the selling price: the cost entry uses what the goods cost the business, never the price charged.
Practice Cash sale
These drills check your answer on live data, free, no account needed.
- Cash sale of servicesPinecrest Tutoring finishes a week of tutoring sessions and receives $850 in cash from parents at the end of the last session.
- Sale on account with costMesa Electronics sells a home theater system to a customer on account for $3,200. The system cost Mesa $1,900. Mesa uses a perpetual inventory system. Record both the sale and the cost in one entry.
Questions
Is a cash sale a debit or credit to cash?
Cash is debited because the asset increases; Sales Revenue is credited.
Do I record cost of goods sold on every sale?
Under a perpetual system yes, at the time of sale. Under a periodic system cost of goods sold is computed once at period end instead.
Related
- Sale on accountHow to record a sale on credit: debit Accounts Receivable, credit Sales or Service Revenue, plus the cost of goods sold entry and the later collection.
- Cost of goods soldHow to record cost of goods sold: Dr Cost of Goods Sold, Cr Inventory at each sale under a perpetual system, or compute it at year end under periodic.
- Credit card salesHow to record a sale paid by card: Dr Cash for the net deposit, Dr Credit Card Expense for the fee, Cr Sales Revenue for the full price. Receivable variant.
- Debits and creditsDebits and credits in plain English: the rule for assets, liabilities, equity, revenue and expenses, the DEALER memory aid and worked entries.