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Comment by wodenokoto | Hacker News Reader

What made a lot of Econ and related stuff click for me is the idea that there is no such thing as a sale, only a purchase. When you buy a tv for $200, the electronics store buys $200 dollars of cash for $200 of TV.

So the electronic store hasn’t made any money on the transaction. They lost $200 dollars of tv and received $200 of cash. So the tv account got deducted 200 and the cash account got increased 200.

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That is a bit of a over-simplification. Its true that there would be corresponding $200 entries that balance. But the store did make money on the transaction, and the journal entries would show it in a manner as shown below (assumption 50% margin on sales). (COGS is Cost of goods sold).

    Cash $200 - Debit

    COGS $100 - Debit

         Inventory $100 - Credit

         Revenue   $200 - Credit

Yes, the journal entries don't immediatly show the profit as an explicit line item. But once closing entries are done, an income statement can be created that essentially shows the change in value of all your accounts for a certain period. In the income statement, profits would be calculated.

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