Cost of Goods Sold
Definition: The direct costs attributable to the production or purchase of goods sold by a company during a period. Includes materials, direct labor, and alloc…
Scope:Very BroadDifficulty:Easy
The direct costs attributable to the production or purchase of goods sold by a company during a period. Includes materials, direct labor, and allocated manufacturing overhead. COGS = Beginning Inventory + Purchases − Ending Inventory.
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Record COGS (perpetual) | ||
| Sell goods costing $3,500. | ||
| Cost of Goods SoldExpense+ | $3,500 | |
| Merchandise InventoryAsset− | $3,500 | |
| Expense recognized when sale occurs (perpetual system). | ||
| 2. Record sale (revenue side) | ||
| Same sale at $5,200 selling price. | ||
| Accounts ReceivableAsset+ | $5,200 | |
| Sales RevenueRevenue+ | $5,200 | |
| Both entries recorded simultaneously. Gross profit = $1,700. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Cost of Goods SoldExpense account — the direct cost of merchandise sold to customers. Debits increase the balance. Only recorded at the time of sale under the perpetual method.ExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$3,500.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$3,500.00
Merchandise InventoryAsset account — goods purchased for resale. Under the perpetual method, credits reduce inventory when goods are sold.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$3,500.00
$3,500.00
Accounts ReceivableAsset account — amounts owed by customers. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$5,200.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,200.00
Sales RevenueRevenue account — income from selling goods or services. Credits increase the balance. Debits decrease the balance.RevenueIncome earned from business operations. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,200.00
Normal bal. ▶
$5,200.00
Related Subjects
Used in Formula
- Gross Profit MarginUsed in: Gross Profit Margin
- Inventory TurnoverUsed in: Inventory Turnover
- Payable TurnoverUsed in: Payable Turnover
See Also
- RevenueBoth part of Gross Profit Margin
External Links
- Cost of goods sold — Wikipedia