Journal Entry for Goods and Cash Given Away as Charity

There are two transactions involved in this scenario: giving away goods and giving away cash. Each transaction will have its own journal entry.

Transaction 1: Giving Away Goods as Charity


Debit: Charity Expense Account - $20,000


Credit: Inventory Account - $20,000

Explanation: When goods are given away as charity, it is considered an expense for the organization. Therefore, the Charity Expense Account is debited for the value of goods given away. At the same time, the Inventory Account is credited for the same amount to reduce the value of inventory on hand.

Transaction 2: Giving Away Cash as Charity


Debit: Charity Expense Account - $5,000


Credit: Cash Account - $5,000

Explanation: When cash is given away as charity, it is considered an expense for the organization. Therefore, the Charity Expense Account is debited for the value of cash given away. At the same time, the Cash Account is credited for the same amount to reduce the cash balance.

Summary

In summary, the journal entry for giving away goods worth $20,000 and cash worth $5,000 as charity would be as follows:

Debit: Charity Expense Account - $25,000


Credit: Inventory Account - $20,000


Credit: Cash Account - $5,000

This entry reflects the expenses incurred by the organization for charitable activities and the reduction of inventory and cash balances.

Charity account will be debited with 25000 and purchases a/c will be credited with 20000 and cash a/c will be credited with 5000. As charities are a kind of loss to a firm so it 'll be debited and purchases a/c is a nominal a/c so it will be credited and cash being a real a/c and going out so it will be credited as Dr what comes in and Cr. what goes out