Cost of goods sold journal entry: debit or credit, with perpetual and periodic examples
Cost of goods sold is an expense account, so it increases with a debit. The basic entry is debit Cost of goods sold, credit Inventory, for the cost of the goods sold. In a perpetual system you post it at each sale. In a periodic system you post one entry at period end that clears purchases and sets inventory to its counted value: with $500,000 at the start, $450,000 of purchases and $200,000 counted at the end, cost of goods sold is $750,000. Cost of goods sold is not an asset; inventory is.
Debit or credit
| Account | Type | Increases with | Decreases with |
|---|---|---|---|
| Inventory | Asset | Debit | Credit |
| Cost of goods sold | Expense | Debit | Credit |
| Purchases (periodic only) | Temporary account, cleared at period end | Debit | Credit |
When goods are sold, their carrying amount is recognised as an expense in the period the sale is recognised (IAS 2). That is the move from the Inventory asset to the Cost of goods sold expense.
The perpetual entry, at each sale
A sale of 30 units that cost $6.90 each:
| Account | Debit | Credit |
|---|---|---|
| Cost of goods sold | $207.00 | |
| Inventory | $207.00 |
The revenue side (debit cash or receivable, credit sales) is a separate entry.
The periodic entry, at period end
AccountingTools' example: inventory $500,000 at the start, $450,000 bought during the month into a purchases account, and $200,000 counted at month end (AccountingTools). Cost of goods sold = $500,000 + $450,000 − $200,000 = $750,000.
| Account | Debit | Credit |
|---|---|---|
| Cost of goods sold | $750,000.00 | |
| Purchases | $450,000.00 | |
| Inventory ($500,000 down to $200,000) | $300,000.00 |
The entry empties the purchases account and leaves inventory at the counted $200,000.
Other entries that touch cost of goods sold
| Event | Debit | Credit |
|---|---|---|
| Freight-in on stock you bought | Inventory (or Freight-in, cleared to cost of goods sold) | Cash or Accounts payable |
| Customer return put back into stock | Inventory | Cost of goods sold |
| Stock lost, stolen or damaged | Cost of goods sold, or an inventory loss account | Inventory |
| Write-down to a value below cost | Cost of goods sold, or a write-down expense | Inventory |
Losses and write-downs: inventory write-off and write-down.
The monthly entry for a Shopify store
Many Shopify-to-accounting setups post sales, fees and payouts but not cost of goods sold, so the profit and loss shows sales with little cost against them. One entry a month fixes it, between Cost of goods sold and the inventory asset:
- Supplier bills go to the inventory asset: debit Cost of goods sold, credit Inventory, by the month's cost of goods sold.
- Supplier bills go straight to cost of goods sold: move closing minus opening inventory between the same two accounts.
Either way you need opening inventory, purchases and closing inventory at cost. Step by step for QuickBooks: Shopify COGS in QuickBooks Online.
How True COGS fits
- Month-end close, on paid plans: opening inventory, purchases, revaluations, cost of goods sold and closing inventory, recorded only when they balance to the cent.
- One entry to QuickBooks Online from the closed month, on your click: two lines between the accounts you choose, dated the month's last day. No sales or bills are written.
- Stock losses you record appear on their own line of the close.
Related guides
Questions merchants ask
Is cost of goods sold a debit or credit?
A debit. Cost of goods sold is an expense, and expenses increase with a debit. The matching credit goes to Inventory, or to Purchases in a periodic system.
What is the journal entry for cost of goods sold?
Debit Cost of goods sold and credit Inventory, for the cost of the goods sold. In a periodic system the period-end entry also clears the Purchases account.
Is cost of goods sold an asset?
No. Inventory is the asset. When goods are sold, their cost leaves inventory and is recognised as an expense, cost of goods sold, in the period the sale is recognised.
What type of account is cost of goods sold?
An expense account on the income statement, shown above gross profit.
When do you record the cost of goods sold entry?
In a perpetual system, at each sale. In a periodic system, once at the end of the period after counting stock.
How do I record cost of goods sold for a Shopify store?
Many sales connectors post sales and fees but not cost of goods sold. Post one entry a month: if supplier bills go to inventory, debit cost of goods sold and credit inventory by the month's cost of goods sold.
Try True COGS free. True COGS is an inventory costing app for Shopify by Nexus Logic Systems. It records the price you paid on every delivery (a received purchase order or a transfer), with its share of freight and duty on paid plans, keeps every price with its date, and writes your moving weighted average cost, or FIFO cost on a paid plan, to Shopify's Cost per item. It is free for up to 25 variants with a cost on record; paid plans start at $29 a month or $290 a year.
Install from the App Store