When the retailer sells the merchandise the Inventory account is credited and the Cost of Goods Sold account is debited for the cost of the goods sold.

When would you credit a COGS account?

Create a journal entry

When adding a COGS journal entry, you will debit your COGS Expense account and credit your Purchases and Inventory accounts. Purchases are decreased by credits and inventory is increased by credits. You will credit your Purchases account to record the amount spent on the materials.

When should COGS be recognized?

COGS is recognized in the same period as the related revenue, so that revenues and related expenses are always matched against each other (the matching principle); the result should be recognition of the proper amount of profit or loss in an accounting period.