Review the following situation and record the journal entry for Nine Lives Inc: On January 23, Nine Lives Inc. sells $4,520 worth of merchandise to a customer who pays with cash. The merchandise has a cost to Nine Lives of $3,600. Shipping charges are an extra $190 cash. Terms of the sale are FOB Destination.
Journal entry:
\begin{tabular}{|l|l|l|l|}
\hline January 23 & $\square$ & $\square$ & \\
\hline & $\square$ & & $\square$ \\
\hline & To record shipping charges. & & \\
\hline
\end{tabular}
Answer (2)
Record the cash sale: Debit Cash $4 , 520 , Credit Sales Revenue $4 , 520 .
Record the cost of goods sold: Debit Cost of Goods Sold $3 , 600 , Credit Inventory $3 , 600 .
Record the shipping charges: Debit Shipping Expense $190 , Credit Cash $190 .
The journal entries accurately reflect the transactions: See journal entry in step 5 .
Explanation
Analyzing the Transactions On January 23, Nine Lives Inc. made a sale of merchandise for cash and incurred shipping charges. We need to record these transactions in the journal. Since the terms are FOB Destination, the seller (Nine Lives Inc.) is responsible for the shipping costs.
Recording the Cash Sale First, we record the cash sale of merchandise. The company received $4 , 520 in cash, so we debit (increase) the Cash account and credit (increase) the Sales Revenue account.
Recording the Cost of Goods Sold Next, we record the cost of goods sold. The cost of the merchandise was $3 , 600 . We debit (increase) the Cost of Goods Sold account and credit (decrease) the Inventory account.
Recording the Shipping Charges Finally, we record the shipping charges. Nine Lives Inc. paid $190 cash for shipping, so we debit (increase) the Shipping Expense account and credit (decrease) the Cash account.
Journal Entry Summary Here's the journal entry:
Date
Account
Debit
Credit
January 23
Cash
$$4,520
To record cash sale of merchandise
January 23
Cost of Goods Sold
$$3,600
To record cost of goods sold
January 23
Shipping Expense
$$190
To record shipping charges
Final Answer Based on the analysis, the journal entries are:
Debit Cash $4 , 520 , Credit Sales Revenue $4 , 520 to record the cash sale.
Debit Cost of Goods Sold $3 , 600 , Credit Inventory $3 , 600 to record the cost of goods sold.
Debit Shipping Expense $190 , Credit Cash $190 to record the shipping charges.
Examples
Understanding how to record sales, costs, and expenses is crucial for any business. For example, imagine a small online store selling handmade jewelry. Each time they sell a piece, they need to record the revenue, the cost of the materials used to make the jewelry, and any shipping costs. Correctly recording these transactions helps them understand their profitability and make informed business decisions, such as pricing their products or managing their inventory effectively. This ensures the business can accurately track its financial performance and remain sustainable.
The journal entry for Nine Lives Inc. involves three main transactions: recording the cash sale, the cost of goods sold, and the shipping charges. For each transaction, appropriate accounts are debited and credited to reflect changes in cash, revenue, costs, and expenses. Overall, these entries help the company track its financial performance accurately.
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