What journal entries are made when goods are sold?
A shop sold goods: in which accounts revenue, VAT, cost of goods and payment are recorded. A four-step example with a table.
The "Baraka" household appliance shop sold a batch of refrigerators to a wholesale buyer. One sale, but in the books it turns into four different records. Why four? Because four things happen at once in a sale: revenue arises, VAT is charged, goods leave the warehouse and money comes in.
The amounts in the example are illustrative. The shop is a VAT payer, the rate is 12%.
What happens in a sale?
- The goods were sold for 10 000 000 soums excluding VAT
- VAT: 10 000 000 × 12% = 1 200 000 soums
- The buyer must pay a total of 11 200 000 soums
- These refrigerators cost the shop 7 000 000 soums (cost of goods)
What journal entries are made?
| Step | Transaction | Debit | Credit | Amount |
|---|---|---|---|---|
| 1 | Revenue recognised | 4010 | 9020 | 10 000 000 |
| 2 | VAT charged | 4010 | 6410 | 1 200 000 |
| 3 | Cost of goods sold written off | 9120 | 2910 | 7 000 000 |
| 4 | Buyer transferred the money to the bank | 5110 | 4010 | 11 200 000 |
After the fourth step, the balance of account 4010 drops to zero: the buyer has settled its debt.
Where does the profit show?
9020 shows revenue of 10 000 000, 9120 shows cost of 7 000 000. The difference between them is 3 000 000 soums, which is gross profit.
At the end of the period, accounts 9020 and 9120 are closed to account 9900 "Final financial result". Since 9120 is a transit account, it leaves no balance at period end.
Where are mistakes most often made?
- Forgetting to record the cost of goods. Revenue is recorded, but the goods are not written off the warehouse. As a result, profit looks inflated, and goods that do not exist "sit" in the warehouse.
- Leaving VAT inside revenue. If the full 11 200 000 is credited to 9020, revenue is artificially inflated. VAT does not belong to the shop; it belongs to the budget.
- Mixing up advances and sales. If the buyer paid in advance, this is not yet a sale but an advance received (6310).
Test yourself
5 questions on this topic: pick an option or reveal the answer.
A buyer's debt for goods sold has been found to be uncollectible. The company did not create an allowance for doubtful debts for this debt, and the debt is written off directly as a loss. Which journal entry is made?
Because a defect was found in fabric it had sold, Ipak yo'li tekstil gave the customer a price discount, and the customer's debt was reduced by that amount. What journal entry is made?
An advance payment for goods from a customer has arrived in the bank. What journal entry is made?
A wholesale trading firm sold goods from its warehouse to a customer. With what journal entry is the cost of the goods sold written off?
A retail shop records goods at a trade markup. With what journal entry is the trade markup attributable to goods sold written off?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- NAS No. 21 "Chart of Accounts" · accounts 4010, 9020, 9120, 2910, 6410, 5110, 9900
- Tax Code of the Republic of Uzbekistan · VAT, standard rate 12%
- Example and amounts · prepared by the author, illustrative