Each time inventory is sold, two transactions occur: revenues (sales) are recorded, and inventory is used up to become an expense. This means two journal entries are recorded:

DR Cash (or accounts receivable if on account) CR Sales (to record sales revenues earned)

DR Cost of Goods Sold CR Inventory (To record inventory becoming the expense of the sale)

Consider the impact of recording these two transactions. What key profit factor do you learn from this journal entry? What does recording this transaction tell you about the gross profit on each sale? Does this gross profit indicate overall profitability?