Check out some similar questions!

thomrich5 · Sep 19, 2006, 09:47 AM

I just opened a restaurant and gave away $4000 in sales the first day. I am not sure what journal entry to make. And should it be booked at cost or fair market value?

My guess is that the debit entry would be Promotional expense ($) but I am not sure what the credit entry would be. Also, would this cost be in cost of goods sold?

Thank you

CaptainForest · Sep 19, 2006, 03:24 PM

Let's say you sold a hotdog for 4,000 that cost you 3,000

Typically, the JE you would make would be:

Dr. Cash 4,000
Cr. Sales 4,000

Dr. COGS 3,000
Cr. Inventory 3,000

However, by giving it away as a promotion, you have no incoming cash or sales.

So, here is what you do:
Dr. COGS 3,000
Cr. Inventory 3,000

Dr. Promotion Expense (or whatever you call the account) 3,000
Cr. COGS 3,000

So, you record the promotion at cost to you.

By Dr. and Cr. COGS, you have effectively cancelled them out, so your net JE is:
Dr. Promotion Expense 3,000
Cr. Inventory 3,000

Note: it is assuming that of the 4,000 in sales, the cost to you was 3,000.