Cherokee Inc. is a merchandiser that sold inventory costing \$5,000 for \$8,000 cash. Which of the following journal entries correctly records the sale of inventory?

• A. Debit Inventory \$5,000; Credit Cash \$5,000; Debit Sales Revenue \$8,000; Credit Cash \$8,000
• B. Debit Sales Revenue \$8,000; Credit Cash \$8,000; Debit Inventory \$5,000; Credit Cost of Goods Sold \$5,000
• C. Debit Cash \$5,000; Credit Sales Revenue \$5,000; Debit Cost of Goods Sold \$8,000; Credit Inventory \$8,000
• D. Debit Cash \$8,000; Credit Sales Revenue \$8,000; Debit Cost of Goods Sold \$5,000; Credit Inventory \$5,000

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the transaction. Cherokee Inc. sold inventory for \$8,000 cash, and the cost of the inventory sold was \$5,000. This transaction involves two key components: (1) recording the revenue from the sale and (2) recording the cost of goods sold (COGS) and the reduction in inventory.
2. Step 2: Record the revenue from the sale. Since the company received \$8,000 in cash, you need to debit the Cash account for \$8,000. To recognize the revenue, you credit the Sales Revenue account for \$8,000.
3. Step 3: Record the cost of goods sold. The inventory that was sold had a cost of \$5,000. To reflect this expense, you debit the Cost of Goods Sold (COGS) account for \$5,000.
4. Step 4: Reduce the inventory balance. Since the inventory has been sold, you need to decrease the Inventory account by \$5,000. To do this, you credit the Inventory account for \$5,000.
5. Step 5: Combine the entries. The correct journal entry is: Debit Cash \$8,000; Credit Sales Revenue \$8,000; Debit Cost of Goods Sold \$5,000; Credit Inventory \$5,000. This entry reflects both the revenue from the sale and the cost associated with the inventory sold.