When selling inventory, the journal entry must reflect both the revenue generated from the sale and the cost associated with that inventory. In this scenario, the inventory originally cost $1,300 and was sold for $2,000, with $500 received in cash and the remaining $1,500 recorded as accounts receivable.
The correct entry includes a debit to accounts receivable for the amount expected to be collected in the future, which is $1,500. This reflects the sales transaction where the business acknowledges the money it will receive from the customer. This debit entry increases the accounts receivable, signaling that the business has a claim for that amount.
Additionally, the journal entry will also include a credit to sales revenue for the total amount of the sale, which is $2,000, and a debit to cost of goods sold for $1,300 to account for the inventory that has been sold. The cost of goods sold represents the expense tied to the inventory that was sold, properly matching the revenue earned from the sale.
By accurately recording these transactions, the financial statements will correctly reflect the company’s revenue and the costs incurred, maintaining the integrity of the accounting equation.