What part of the journal entry is involved when recording the sale of an item that sold for $42 cash with a cost of $28?

When recording the sale of an item, it is important to properly reflect both the revenue generated from the sale and the cost associated with the inventory that has been sold. In this scenario, cash is received for the sale, but the focus of the question is on recording the transaction related to the inventory that has been sold.

The correct choice involves debiting Cost of Goods Sold for $28 and credits Inventory for the same amount. This is necessary because it accurately captures the expense related to the item sold, as this expense will reduce the net income on the income statement, reflecting the actual cost incurred by the company. The reduction in inventory is also essential, as it signifies that the item is no longer available for sale.

When goods are sold, the inventory account must decrease because the entity no longer possesses those goods. Simultaneously, the Cost of Goods Sold is increased to match the revenue from sales against the actual cost incurred, adhering to the matching principle in accounting. This principle ensures that expenses are recorded in the same period as the revenues they help to generate, providing a clearer picture of profitability.

Therefore, the correct recording of the cost associated with the sale emphasizes the relationship between sales revenue and the costs that are incurred to generate that revenue.