Bookkeeping – Credit Sales and Cash Sales
Posted on February 25, 2011 | No Comments
Leo Thomas asked:
Bookkeeping is the process of recording the financial transactions for a business. These transactions will ultimately provide the core information to construct the profit and loss account and balance sheet for a business. As part of this bookkeeping, the bookkeeper will need to record all the revenue and expenditure for the business, whether they are in cash or on credit. The revenue for any business is generated from the sales of its products or services. Sales records for most businesses can be maintained easily with the help of a simple sale daybook, which is basically a list of all the sales invoices issued in a particular period or year. However, with larger businesses, a variety of accounting records are involved when recording and tracking sales; these can include the sales daybook (as already mentioned), sales ledger, debtors or accounts receivable account and bank/cash ledger.
Sales transactions can generally be divided into two types; credit sales and cash sales.
Credit sales
If your customer has credit terms with your business, where products or services are sold without immediately receiving payment, then these are called credit sales. When dealing with credit sales there needs to be proper accounting procedures in place. Indeed, when customers order goods or services on credit there are several bookkeeping consequences that need to be accounted for.
A sale invoice is raised in the name of the customer when goods are dispatched from the inventory or a service is provided. You make an entry in the name of the customer in the accounts receivable/debtors ledger and also an entry into the sales ledger. The inventory records should also reflect the movement of any physical stock. The invoice is sent to the customer to keep their accounts updated as regards the transaction. When cash is received from the customer for the invoice, then this should be offset against the original entry in the accounts receivable ledger. The sales ledger and bank/cash ledger should reflect the payment as well at the same time.
Cash sales
Keeping track of cash sales through the books and records is simpler when compared to accounting for credit sales. Cash sales are those where goods or services are purchased and paid for at the same time by a customer. As a consequence, there are only two accounts which are affected for this kind of sale and they are the sales ledger and the bank/ cash ledger. Of course just like credit sales, the inventory and stock records will need to reflect the dispatch of any physical goods to the customer. Any sale made for cash is recorded in the sales ledger and the cheque or cash received is recorded as an entry in the bank/cash ledger. An invoice and/or receipt should be issued to the customer which details the goods or services sold and also to acknowledge the payment.
Recording credit sales and cash sales properly are a very important part of bookkeeping. The main thing to bear in mind is that by accurately recording these transactions in the books and records of the business you are able to create a sound audit-trail. This audit trail will allow you to manage your business transactions more efficiently and effectively, and also give you greater financial control over the business.
Caffeinated Content
Bookkeeping is the process of recording the financial transactions for a business. These transactions will ultimately provide the core information to construct the profit and loss account and balance sheet for a business. As part of this bookkeeping, the bookkeeper will need to record all the revenue and expenditure for the business, whether they are in cash or on credit. The revenue for any business is generated from the sales of its products or services. Sales records for most businesses can be maintained easily with the help of a simple sale daybook, which is basically a list of all the sales invoices issued in a particular period or year. However, with larger businesses, a variety of accounting records are involved when recording and tracking sales; these can include the sales daybook (as already mentioned), sales ledger, debtors or accounts receivable account and bank/cash ledger.
Sales transactions can generally be divided into two types; credit sales and cash sales.
Credit sales
If your customer has credit terms with your business, where products or services are sold without immediately receiving payment, then these are called credit sales. When dealing with credit sales there needs to be proper accounting procedures in place. Indeed, when customers order goods or services on credit there are several bookkeeping consequences that need to be accounted for.
A sale invoice is raised in the name of the customer when goods are dispatched from the inventory or a service is provided. You make an entry in the name of the customer in the accounts receivable/debtors ledger and also an entry into the sales ledger. The inventory records should also reflect the movement of any physical stock. The invoice is sent to the customer to keep their accounts updated as regards the transaction. When cash is received from the customer for the invoice, then this should be offset against the original entry in the accounts receivable ledger. The sales ledger and bank/cash ledger should reflect the payment as well at the same time.
Cash sales
Keeping track of cash sales through the books and records is simpler when compared to accounting for credit sales. Cash sales are those where goods or services are purchased and paid for at the same time by a customer. As a consequence, there are only two accounts which are affected for this kind of sale and they are the sales ledger and the bank/ cash ledger. Of course just like credit sales, the inventory and stock records will need to reflect the dispatch of any physical goods to the customer. Any sale made for cash is recorded in the sales ledger and the cheque or cash received is recorded as an entry in the bank/cash ledger. An invoice and/or receipt should be issued to the customer which details the goods or services sold and also to acknowledge the payment.
Recording credit sales and cash sales properly are a very important part of bookkeeping. The main thing to bear in mind is that by accurately recording these transactions in the books and records of the business you are able to create a sound audit-trail. This audit trail will allow you to manage your business transactions more efficiently and effectively, and also give you greater financial control over the business.
Caffeinated Content