Cost of Goods Sold Journal Entries

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  • 0:01 What Is Cost of Goods Sold?
  • 1:27 Job Order Cost Flow
  • 2:25 Differences
  • 2:39 Moving Costs
  • 3:02 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

In this lesson, you'll learn more about cost of goods sold and how to properly write down your cost of goods sold and then transfer it into the right job order entry so your financial records are accurate.

What Is Cost of Goods Sold?

Owning a business requires a lot of paperwork. You need paperwork to order your supplies. You need paperwork to make your products. You also need paperwork to record all of your purchases and sales. One of these necessary records contains information on your cost of goods sold. This is a record that shows you how much you spent on the products you sold.

For example, say you are in the business of making and selling computers. You sold 500 computers last month. Your cost of goods sold for last month would be the amount you had to pay to make those 500 computers. So if it costs you $200 to make each computer, then your cost of goods sold for last month is 500 * $200 = $100,000.

Your accounting journal entry would look like this:

Date Account Debit Credit
April 2016 Cost of Goods Sold $100,000
Inventory $100,000

What you've done here is debit your cost of goods sold account, while crediting your inventory account. Remember, in accounting, to debit is to add and credit is to take away for expense accounts. This increases the amount you've listed in your cost of goods account, while decreasing the amount you have in inventory. Why would you credit the inventory account? You credit the account because when you sell your products, you are subtracting from your inventory account and thus credit, or taking away from, this account.

Job Order Cost Flow

In addition to your cost of goods sold record, you can also keep track of your expenses and sales through the job order cost flow method. This method lists the cost of goods sold as part of a job, and it's usually used when you get orders that are unique to each customer.

In your computer business, you may have some people purchasing your already-made computers while other people request a custom built computer. For the custom built computer orders, you can use the job order cost flow method to track your accounting for these jobs.

For example, say you receive a custom order for a 3 GHz computer with 8GB of RAM, one Blu-ray player, and one DVD-RW player. You charge the customer $799 for this computer, and it costs you $210 to make it. In your journal, you will note everything related to this job, from the material acquisition to the sale of the item.

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