Exam code:0452 & 0985
Cash sales
What is a cash sale?
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A cash sale is when a customer pays upfront for goods or services
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The business issues the customer with a receipt
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A copy of the sales receipt is used as the business document
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The book of prime entry is the cash book
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Cash sales do not get recorded in the sales journal
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How do I record a cash sale in the ledger accounts?
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Debit the cash or bank account in the nominal ledger
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This is because the business is receiving cash
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The asset is increasing
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Credit the sales account in the nominal ledger
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Note that no entries are made in the trade receivables accounts
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This is because the goods were paid for straight away
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Therefore the customer does not owe the business any money
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Worked Example
A business sells $500 worth of goods to Alex who pays in cash upfront on 1 January 2024. Record this transaction in the ledger accounts for the business.
Answer
Cash Account
|
Date |
Details |
$ |
Date |
Details |
$ |
|
2024 Jan 1 |
Sales |
500 |
Sales Account
|
Date |
Details |
$ |
Date |
Details |
$ |
|
2024 Jan 1 |
Cash |
500 |
Credit sales
What is a credit sale?
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A credit sale is when a customer pays later for goods or services
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The business will issue the customer with an invoice
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A copy of the sales invoice is used as the business document
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The book of prime entry is the sales journal
How do I record a credit sale in the ledger accounts?
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Debit the trade receivable account in the sales ledger
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This is because the business is owed money by the credit customer
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The asset is increasing
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Credit the sales account in the nominal ledger
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Note that no entries are made in the cash or bank accounts
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No cash has been exchanged yet
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Worked Example
A business sells $500 worth of goods to Alex on credit on 1 January 2024. Record this transaction in the ledger accounts for the business.
Answer
Alex Account
|
Date |
Details |
$ |
Date |
Details |
$ |
|
2024 Jan 1 |
Sales |
500 |
Sales Account
|
Date |
Details |
$ |
Date |
Details |
$ |
|
2024 Jan 1 |
Alex |
500 |
Payments from credit customers
How could a credit customer pay an invoice?
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A credit customer could pay by:
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Cash payment
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Cheque
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Bank transfer
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Telephone transfer
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Cheques and transfers are recorded in the bank account
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Bank statements, cheques, and receipts are used as business documents
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The book of prime entry is the cash book
How do I record a payment from a credit customer in the ledger accounts?
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Debit the cash or bank account in the nominal ledger
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This is because the business is receiving money
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The asset is increasing
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Credit the trade receivable account in the sales ledger
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This is because the customer owes the business less money
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The asset is decreasing
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Worked Example
On 4 January 2024, a business receives a cheque from Alex for $100 for an invoice. Record this transaction in the ledger accounts for the business.
Answer
Bank Account
|
Date |
Details |
$ |
Date |
Details |
$ |
|
2024 Jan 4 |
Alex |
100 |
Alex Account
|
Date |
Details |
$ |
Date |
Details |
$ |
|
2024 Jan 4 |
Bank |
100 |
Discount allowed
What is discount allowed?
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A business might offer a cash discount for early repayment of an invoice
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This is not a trade discount
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The business is allowing a discount to a credit customer
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The sales invoice is used as the business document
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The terms of the cash discount will be detailed
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The book of prime entry is the cash book
How do I record discount allowed in the ledger accounts?
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Credit the trade receivable account in the sales ledger
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This is because the business is owed less money from a credit customer
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The asset is decreasing
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Debit the discount allowed account in the nominal ledger
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You will normally have to record the transaction for the receipt of payment at the same time
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Make sure that the sum of the debit entries equals the sum of the credit entries
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Examiner Tips and Tricks
Questions will normally:
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Tell you the percentage for the discount allowed
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Tell you that a customer paid an amount in full settlement of their debt
Worked Example
A business allows Alex a 10% cash discount when they repay their $400 invoice early on 4 January 2024 via bank transfer. Record this transaction in the ledger accounts for the business.
Answer
The discount is 10% of $400, which is $40.
The amount Alex pays is $400 – $40, which is £360.
Discount Allowed Account
|
Date |
Details |
$ |
Date |
Details |
$ |
|
2024 Jan 4 |
Alex |
40 |
Bank Account
|
Date |
Details |
$ |
Date |
Details |
$ |
|
2024 Jan 4 |
Alex |
360 |
Alex Account
|
Date |
Details |
$ |
Date |
Details |
$ |
Responses