Accounting Entries for Inventory and Cost of Goods Sold (COGS)

When a business sells goods, two important accounting entries will made:

1. Record the Sale (Revenue)
2. Record the Cost of Goods Sold (COGS)—the cost of the inventory sold

1. Purchase of Inventory

Date	Account Title	Debit ($)	Credit ($)
Jan 5	Inventory A/c Dr	10,000
	Accounts Payable		10,000
record a purchase of inventory on credit.

2. Sale of Inventory (at a Markup)

Suppose inventory costing $6,000 is sold for $9,000.

A. Record the Sales Revenue

Date	Account Title	Debit ($)	Credit ($)
Jan 10	Accounts Receivable A/c Dr	9,000
	Sales Revenue		9,000
record the sale of goods to a customer on account.

B. Record the Cost of Goods Sold

Date	Account Title	Debit ($)	Credit ($)
Jan 10	Cost of Goods Sold A/c Dr	6,000
	Inventory		6,000
record cost of inventory sold.

3. Adjusting Entry at End of Period (if using Periodic Inventory)

If using a periodic system, you will make adjusting entries to update inventory and COGS at period-end.

Date	Account Title	Debit ($)	Credit ($)
Dec 31	Inventory (Ending) A/c Dr	X
	Cost of Goods Sold A/c Dr	Y
	Inventory (Beginning)		A
	Purchases		B

💡 Adjusting entries help calculate:
COGS = Beginning Inventory + Purchases – Ending Inventory

Summary of Accounts Used

Account	Type	Normal Balance
Inventory	Asset	Debit
Cost of Goods Sold	Expense	Debit
Sales Revenue	Revenue	Credit
Accounts Receivable	Asset	Debit
Accounts Payable	Liability	Credit

Bonus Tip:

Journal Entries in Tally Prime:

• Inventory Purchase: Use “Purchase Voucher”
• Inventory Sale: Use “Sales Voucher” and enable “Inventory Values are affected” under Inventory Features