Question

Cost of Goods Sold account is debited and Finished Goods Inventory is credited for A) purchase of goods on account. B) the sale of goods to a customer. C) transfer of materials into Work-in-Process Inventory. D) transfer of goods to the Finished Goods Storeroom.

Answer 1

Answer:

B) the sale of goods to a customer.

Explanation:

When goods are sold to a customer, the cost of goods sold account is debited by the same value that the finished goods inventory is credited.

For example, suppose a company sells $1,000 worth of goods to a customer, and the sales price is $1,200. The customer pays by cash the full value of the goods. The journal entry would be:

Account                                    Debit           Credit

Cash                                         $1,200

Sales Revenue                                             $1,200

Cost of Goods Sold                $1,000

Finished Goods Inventory                           $1,000