From the course: Accounting Foundations: Bookkeeping

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Selling inventory and providing services

Selling inventory and providing services

From the course: Accounting Foundations: Bookkeeping

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Selling inventory and providing services

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- Okay, now one of your customers asks if you'll plant some shrubs in her backyard. She's thrilled that you have just the shrubs that she wants, thereby saving her a trip to the greenhouse. You use one half of your inventory of shrubs in this customer's yard and it takes you three hours to complete the job. She pays you in cash. In this instance we are dealing with two different types of revenue, profit from the sale of the shrubs and revenue from your labors. Let's deal with each type of revenue separately. First, the sale of the shrubs. Sales, whether made on account or for cash, require entries that reflect not only the sale, but also the cost of the inventory that's sold. The cost of goods sold is an expense and as such, is offset with the sales revenue to determine to the profitability of the sales transactions. While accounting for inventory can get quite complicated. For our purposes, we're just trying to illustrate the effects of these transactions on the accounting equation…

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