Final answer:
Journal entries for selling finished goods on account involve recording both the revenue from the sale and the cost of the goods sold. The transaction increases Accounts Receivable and Sales Revenue while decreasing Inventory and increasing Cost of Goods Sold. A firm's accounting profit is derived by subtracting total expenses from sales revenue.
Step-by-step explanation:
When a business sells finished goods on account, it means the sale is made on credit, and the customer will pay at a later date. For such transactions, the journal entries record both the cost of the goods sold (COGS) and the sale revenue. Assume a company sold goods valued at $500 with a cost of $300. The entries would be:
- Debit Accounts Receivable $500
- Credit Sales Revenue $500
This records the sale. Then to record the cost:
- Debit Cost of Goods Sold $300
- Credit Inventory $300
For the self-check question, the accounting profit is calculated by subtracting the total expenses from the sales revenue:
- Sales Revenue: $1,000,000
- Total Expenses (Labor + Capital + Materials): $600,000 + $150,000 + $200,000 = $950,000
Accounting Profit = Sales Revenue - Total Expenses
Accounting Profit = $1,000,000 - $950,000 = $50,000