Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

Cherokee Inc. is a merchandiser that sold inventory costing \$5,000 for \$8,000 cash. Which of the following journal entries correctly records the sale of inventory?

Debit Inventory \$5,000; Credit Cash \$5,000; Debit Sales Revenue \$8,000; Credit Cash \$8,000

Debit Sales Revenue \$8,000; Credit Cash \$8,000; Debit Inventory \$5,000; Credit Cost of Goods Sold \$5,000

Debit Cash \$5,000; Credit Sales Revenue \$5,000; Debit Cost of Goods Sold \$8,000; Credit Inventory \$8,000

Debit Cash \$8,000; Credit Sales Revenue \$8,000; Debit Cost of Goods Sold \$5,000; Credit Inventory \$5,000

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Verified step by step guidance

Step 1: Understand the transaction. Cherokee Inc. sold inventory for $8,000 cash, and the cost of the inventory sold was $5,000. This transaction involves two key components: (1) recording the revenue from the sale and (2) recording the cost of goods sold (COGS) and the reduction in inventory.

Step 2: Record the revenue from the sale. Since the company received $8,000 in cash, you need to debit the Cash account for $8,000. To recognize the revenue, you credit the Sales Revenue account for $8,000.

Step 3: Record the cost of goods sold. The inventory that was sold had a cost of $5,000. To reflect this expense, you debit the Cost of Goods Sold (COGS) account for $5,000.

Step 4: Reduce the inventory balance. Since the inventory has been sold, you need to decrease the Inventory account by $5,000. To do this, you credit the Inventory account for $5,000.

Step 5: Combine the entries. The correct journal entry is: Debit Cash $8,000; Credit Sales Revenue $8,000; Debit Cost of Goods Sold $5,000; Credit Inventory $5,000. This entry reflects both the revenue from the sale and the cost associated with the inventory sold.