Recording Sale Transactions

Cash sales

Cash sales

What is a cash sale?

• A cash sale is when a customer pays upfront for goods or services

• The business issues the customer with a receipt

  • A copy of the sales receipt is used as the business document

• The book of prime entry is the cash book

  • Cash sales do not get recorded in the sales journal

How do I record a cash sale in the ledger accounts?

• Debit the cash or bank account in the nominal ledger

  • This is because the business is receiving cash

  • The asset is increasing

• Credit the sales account in the nominal ledger

  • This is because the profit is increasing

  • The capital is increasing

Credit sales

Credit sales

What is a credit sale?

• A credit sale is when a customer pays later for goods or services

• The business will issue the customer with an invoice

  • A copy of the sales invoice is used as the business document

• The book of prime entry is the sales journal

How do I record a credit sale in the ledger accounts?

• Debit the trade receivable account in the sales ledger

  • This is because the business is owed money by the credit customer

  • The asset is increasing

• Credit the sales account in the nominal ledger

  • This is because the profit is increasing

  • The capital is increasing

Payments from credit customers

Payments from credit customers

How could a credit customer pay an invoice?

• A credit customer could pay by:

  • Cash payment

  • Cheque

  • Bank transfer

  • Telephone transfer

• Cheques and transfers are recorded in the bank account

• Bank statements, cheques, and receipts are used as business documents

• The book of prime entry is the cash book

How do I record a payment from a credit customer in the ledger accounts?

• Debit the cash or bank account in the nominal ledger

  • This is because the business is receiving money

  • The asset is increasing

• Credit the trade receivable account in the sales ledger

  • This is because the customer owes the business less money

  • The asset is decreasing

Discount allowed

Discount allowed

What is discount allowed?

• A business might offer a cash discount for early repayment of an invoice

  • This is not a trade discount

• The business is allowing a discount to a credit customer

• The book of prime entry is the cash book

How do I record discount allowed in the ledger accounts?

• Credit the trade receivable's account in the sales ledger

  • This is because the business is owed less money from a credit customer

  • The asset is decreasing

• Debit the discount allowed account in the nominal ledger

  • This is because the profit is decreasing

  • The capital is decreasing

• You will normally have to record the transaction for the receipt of payment at the same time

  • Make sure that the sum of the debit entries equals the sum of the credit entries

Dishonoured cheques received from credit customers

Dishonoured cheques received from credit customers

What is a dishonoured cheque?

• A dishonoured cheque is a cheque that has been returned by the bank

  • This could be because the customer did not have the funds to cover the transaction

  • Or it could be due to an error on the cheque such as a missing signature

• This means that the money stated on the cheque has not been paid to the business by the customer

How do I record a dishonoured cheque in the ledger accounts?

• A dishonoured cheque is recorded by making the same entries as when the cheque was received but on the opposite sides of the accounts

• Credit the bank account in the nominal ledger

  • This is because the bank account would have been debited when the cheque was received

  • Credit the amount that is stated on the cheque

• Credit the discount allowed account in the nominal ledger (if applicable)

  • If a cash discount was given to the credit customer then this also needs to be balanced

  • The discount allowed account would have been debited when the cheque was received

• Debit the trade receivables' account in the sales ledger

  • This is because the trade receivable's account would have been credited when the cheque was received

  • The amount is added back onto the balance of the credit customer

  • Debit the full amount of the transaction including any cash discount

Sales returns

Sales returns

What is a sale return?

• A sale return is when a customer returns some goods

• This could be because:

  • The goods were damaged

  • The goods were not what the customer wanted

• The business will issue the customer with a credit note

  • A copy of the credit note issued is used as the business document

• The book of prime entry is the sales returns journal

How do I record a sale return in the ledger accounts?

• Credit the trade receivable account in the sales ledger

  • This is because the business is owed less money from a credit customer

  • The asset is decreasing

• Debit the sales returns account in the nominal ledger

  • This is because the profit is decreasing

  • The capital is decreasing

• If the credit customer has already paid all of their invoices in full

  • Then the trade receivable account will have a credit balance

  • This means the business owes the customer money

  • This will be balanced when the business gives a cash refund

Refunds to credit customers

Refunds to credit customers

When is a refund given to a credit customer?

• A refund may be given to a credit customer

  • when their account has a credit balance

  • if they have overpaid for their goods

  • if they have returned goods after paying for them

How do I record a refund in the ledger accounts?

• Credit the cash or bank account in the nominal ledger

  • This is because the business is paying money to the customer

  • The asset is decreasing

• Debit the trade receivable's account in the sales ledger

  • This is to reduce how much the business owes the customer

  • The asset is decreasing