Answer to Question #163772 in Accounting for Milan

Question

What is the difference between these two journal entries? What does these journal entries entail?

Debit COGS

Credit Inventory

or.

Debit Inventory

Credit COGS

Answer 1

1. A debit to cost of goods sold means that that account balance has increased. It also means that more goods have just been sold, and thus must be increased since the cost (expense) can now be taken against income. The other side of the journal entry would be a credit to Inventory for the same amount.

2. An inventory decreases with sales. The entry involving inventory is to debit/increase Cost of Goods Sold and to credit/decrease Inventory