XYZ Company sold oneboat for $15,000 and half was received in cash and the rest is due in 30 days.The Cost of Goods Manufactured for this boat was $10,000. How would XYZ Companypost this transaction?
To record this transaction, XYZ Company would typically use the accounting equation, which states that assets equal liabilities plus owner's equity.
1. First, let's identify the different accounts involved in this transaction:
- Cash: Represents the amount received in cash immediately.
- Accounts Receivable: Represents the remaining amount that will be received in 30 days.
- Sales Revenue: Represents the total amount for which the boat was sold.
- Cost of Goods Sold (COGS): Represents the cost incurred by the company to manufacture the boat.
2. Now, let's record the transaction step by step:
Step 1: Increase Cash
Debit: Cash $7,500 (half of the total sales price)
Credit: Sales Revenue $7,500 (half of the total sales price)
Explanation: Since half of the amount was received in cash immediately, we increase the Cash account and record the revenue in the Sales Revenue account.
Step 2: Increase Accounts Receivable
Debit: Accounts Receivable $7,500 (remaining amount to be received)
Credit: Sales Revenue $7,500 (remaining amount to be received)
Explanation: The outstanding amount to be received in 30 days is recorded as an increase in the Accounts Receivable account, and the revenue is also recorded in the Sales Revenue account.
Step 3: Record Cost of Goods Sold (COGS)
Debit: Cost of Goods Sold $10,000
Credit: Inventory $10,000
Explanation: The manufacturing cost incurred to produce the boat is recorded as an increase in the Cost of Goods Sold (COGS) account, and the value of the boat's inventory is reduced.
Note: These entries assume that the company uses perpetual inventory system. If XYZ Company uses a periodic inventory system, the COGS entry would be different.
By posting these three transactions, XYZ Company accurately records the sale of the boat, recognizing revenue, and also accounting for the cost associated with manufacturing the boat.