Sold Goods for Cash Journal Entry

Sold goods for cash is the sale transaction that company receives cash at the moment of giving goods to the customers. The customers will pay the supplier immediately after receiving the goods.  Not only cash, but the customer also uses the cash equivalent to settle for the purchase.

It is very important for the business to receive cash immediately after sale. The company will not face uncollectible receivables which is the expense. It also allows the company to use cash to pay for other parties. It will prevent the company liquidation due to lack of cash flow.

Goods sold for cash are mostly happening in the retail store when the company sells products to the final consumers. The company sells the majority of the goods to individual consumers who just paid and go. So it is not applicable to sell on credit to them. The company will find it impossible to collect cash after-sale from such many customers. The retailer is not only accepting cash, but they also accept credit cards as well. It is also considered a cash sale.

Sale on credit mostly happens between business to business. The suppliers sell goods or services to the customer who is not a final consumer. They are just the retailer who will resell the goods to the consumers or other parties. They will not have enough cash to pay immediately as they need time to sell as well. So it is very important to receive good credit terms so they have enough time to collect money and settle with suppliers.

Sold Goods for Cash Journal Entry

The goods are recorded as inventory on the company balance sheet. They are the items that the company is selling to the customers. So when the company sells those goods to the customers, the company needs to remove them from the balance sheet. At the same time, they also record cash as it was paid immediately after the sale.

The journal entry is debiting cash and credit sale.

The transaction will increase cash on balance sheet. The credit side will increase the sale revenue on the income statement.

At the same time, the company is also required to reduce the inventory on balance sheet and record cost of goods sold.

The journal entry is debiting cost of goods sold and credit inventory.

The cost of goods sold will be present on income statement which will reduce the company profit. The inventory also decreases as the items are already sold to customers.

Note: the calculation of COGS would be more complicated than this example, it will be another discussion in another article. This illustrative is trying to simplify and explain the basic concept only.

Sold Goods for Cash Journal Entry Example

ABC is a retail store in the supermarket. On 01 December, the company has make the sale of $ 10,000. The sale consists of 100 units of goods which the company has purchased at $ 70 per unit. Please prepare a journal entry for cash sale and inventory.

ABC purchase goods at $ 70 per unit and it will present on balance sheet as inventory. The inventory was sold for $ 100 per unit ($ 10,000/100 units), so they can make a gross profit of $ 30 per unit.

First, we have to record the cash and revenue by debiting cash on hand $ 10,000 and credit sale revenue $ 10,000.

The cash will increase as the company receive immediate payment from customers. Company is also required to record sales revenue of $ 10,000.

Second, they need to record the movement of inventory to the cost of goods sold.

ABC purchase goods for $ 7,000 (100 units @ $ 70 per unit), so it must remove this inventory amount to cost of goods sold.

The journal entry is debiting cost of goods old $ 7,000 and credit inventory $ 7,000.

Cost of goods is the expense on income statement which reduces the company profit. The inventory is also decreased from the balance sheet as the items were sold to customers.