and now let's take a look at what happens when Holden makes his first sale when you sell
merchandise for accounts change in your chart of accounts for every sale of merchandise two
accounts change by the amount of the price of the sale and two other accounts change by the
amount of the cost of the set when we sell merchandise the amount of the sales price
gets recorded into the new account we created sales which is an income account telling us
the total money that came in from customers for selling merchandise however for that very same
sale what we paid for the specific merchandise that we just gave the customer will be recorded
into the account called cost of goods sold this way you can measure the difference between them
and know your profit for that one sale when we originally purchased the merchandise the
purchase cost of the merchandise was recorded in the account called inventory asset therefore when
you sell merchandise the balance of the inventory asset will decrease by the amount of the purchase
cost of the goods that were sold however since the customer just gave you a check undeposited
funds will increase and of course when the customer gives you a check the money amount
is the sales price of the goods that were sold and those are the two other accounts that will
change for this very same sale and those are the amounts that will change them let us imagine on
May 20 Holden sold 10 apples to Allan and Allan gave Holden check number one two one two well I
happen to know that the price of that sale is equal to five hundred dollars and that
will be a met the amount of the sales receipt but I also have to know that Holden paid $100
to buy the apples that he just sold to Alan for five hundred dollars holden originally paid $100
for the specific apples that he is now giving to Alan on May 20 therefore sales the income account
will show up for the very first time on the trial balance as five hundred dollars and cost of goods
sold will show up on the trial balance for the very first time as a hundred dollars now here we
are at the trial balance we do not yet have sales income at five hundred we do not yet have cost of
goods sold from the main menu click customer enter sale receipt the date of the sale was May 20 the
customer was Alan RB the item was apples notice when you choose Apple's QuickBooks remembers it
was $50 and at $50 an apple and the quantity of this sale was 10 therefore QuickBooks knows the
price of the goods that are sold is $500 but you don't see listed on the invoice that the purchase
cost meaning what we paid the hundred dollars that we bought the apples from that we paid when we
bought the apples from the vendor is not listed here save and close and now when we look at the
trial balance for the very first time sales the income account shows up as $500 and cost of goods
sold the account that QuickBooks put on the chart of accounts shows up for $100 and the difference
is our profit from this specific sale let's open up the inventory asset and see what it looks like
when we double-click we can see that the inventory balance went up for these checks and the inventory
balance went down specifically by $100 for this specific sale if we look at the inventory report
reports inventory inventory valuation detail we will notice something interesting we noticed
that the quantity of apples originally went up by the check on May 18th but the quantity of apples
decreased by the from the sale receipt on May 20th and this year is showing the 50 the number
of apples in each transaction this is showing the remaining quantity after the transaction
Holden's next merchandise sale happened on May 21 he sold seven bananas to Betty because he sold on
account he has to make an invoice the price of this sale that Betty will pay in the future is
seven hundred dollars Holden paid one hundred and forty dollars to the vendor to buy the specific
bananas that he is now giving to Betty on May 21 from the main menu click customers create
invoice now May 21 the customer is Betty the item whom the item is bananas quantity notice
we can click the quantity box here as a nice feature and see the current quantity on hand
of bananas we close it out type in here 7 push tab and this shows that this invoice
is seven hundred dollars however we paid or Holden paid one hundred and forty dollars
originally to buy these bananas keep that in mind when we click Save and close the trial
balance changes now we can see cost of goods sold is now two hundred forty dollars however
sales the income account is now 1200 when we open up the sales account we can see that
this sale receipt put in 500 dollars into the sales account this invoice where we
sold bananas to Betty put another 700 dollars of income into this income account and that's
the reason it became $1,200 when we look at cost of goods sold we see the two very same sales but
we don't see the sales price of those two we see the purchase cost and as I promised the purchase
cost of this invoice was 140 dollars that's why cost of goods sold has a balance of $240 notice
the inventory asset is five hundred sixty dollars some of these are bananas and some of these are
apples when we look at the inventory valuation detail we will know why the inventory asset is
five hundred sixty dollars reports inventory inventory valuation detail don't forget to push
a for all now we can see this invoice decreased about the quantity of bananas by seven bananas
now we only have 23 bananas on hand and you can see that this invoice also lowered the
physical quantity in such a way that the total money we have well the the quantity on hand for
bananas is 23 at $20 each that means that the value of bananas is now 460 dollars the value
of Apple's because we now have 10 on hand is a hundred dollars therefore the total value of
all the inventory together is five hundred sixty dollars apples plus bananas equals five hundred
sixty dollars and that's what the total is in the inventory asset account five hundred sixty dollars