When is revenue recognized on a credit sale?

When control of the goods passes to the customer — usually on shipment or delivery, as the contract's terms say. The invoice date and the payment date do not decide it.

Where does the margin show up?

Gross margin is the profit as a share of the price; markup is the same profit as a share of the cost. The entry records cost and price; both percentages are computed from them.

Journal entry for a sale on account

For a sale on credit, debit Accounts receivable and credit Revenue for the price; under a perpetual inventory system also debit Cost of goods sold and credit Inventory for what the goods cost. When the customer pays, debit Cash and credit Accounts receivable.

Price: $7,500
Cost of goods: $4,800
Gross margin: 36%
Entity: Illustrative company
Basis: Accrual
Currency: USD
Period: May – June 2026

The worked example

On May 8, 2026 a distributor ships $7,500 of goods that cost $4,800 on Net 30 terms, due June 7, 2026. Gross profit is $2,700: a 36% margin, or a 56.3% markup on cost.

Transaction · May 8, 2026

JE-18 May 2026Manualposted

Ship the goods and invoice the customer.

Journal entry JE-1, 4 lines
Account	Debit	Credit
1100 Accounts receivable	7,500 US Dollar
4000 Revenue		7,500 US Dollar
5000 Cost of goods sold	4,800 US Dollar
1200 Inventory		4,800 US Dollar

Totals	12,300 US Dollar	12,300 US Dollar

Balanced.

Transaction · June 7, 2026
JE-27 Jun 2026Manualposted
Collect the invoice on its due date.
Journal entry JE-2, 2 lines
Account Dimensions Debit Credit
1000 Cash 7,500 US Dollar
1100 Accounts receivable 7,500 US Dollar
Totals 7,500 US Dollar 7,500 US Dollar
Balanced.

What the entries do to the accounts

Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.

Net movement by account
Account	Debit	Credit
1000 Cash	7,500 US Dollar
1200 Inventory		4,800 US Dollar
4000 Revenue		7,500 US Dollar
5000 Cost of goods sold	4,800 US Dollar

Totals	12,300 US Dollar	12,300 US Dollar

One account nets to zero across the entries and is not shown.

Why it is booked this way

A credit sale is two exchanges booked together. The customer receives goods in return for a promise to pay — revenue and a receivable — and the company gives up inventory, which becomes the cost of that revenue.

Booking both halves in the same entry date is what makes gross margin true month by month; otherwise the cost lands whenever the next stock count happens.

Common mistakes

Recording revenue and forgetting the cost-of-goods-sold entry, so gross margin looks like 100% until a stock count.
Booking the sale when the cash arrives rather than when the goods are delivered.

Questions

When is revenue recognized on a credit sale?: When control of the goods passes to the customer — usually on shipment or delivery, as the contract's terms say. The invoice date and the payment date do not decide it.
Where does the margin show up?: Gross margin is the profit as a share of the price; markup is the same profit as a share of the cost. The entry records cost and price; both percentages are computed from them.

Terms on this page

Work with this entry

The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.

An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.