written by | May 31, 2022

×

Table of content


Table of content

What is Sales Journal Entry? Step-By-Step Guide

Sales are an integral element of business life and can be paid either cash or credit. In a competitive market, the promotion of credit sales keeps pace with the most recent trends in competitiveness. Accounting and journal entries for credit-related sales include two account types: sales and creditor.

The person who is owed the money is referred to as the "debtor”. The sum due is a present asset that is owned by the business. Handling sales journals and entering all sales-related data carefully is very important.

Today's article is all about a sales journal entry and How to make a sales accounting entry for services and goods.

Did You Know?

If we talk about sales journal entries, it records both cash and credit sales to the consumer. Also, it doesn't just record the entire cash that a business gets from the transaction, but sales journal entries also rectify changes in accounts. For example, Cost of Goods Sold, Sales Tax Payable accounts and Inventory.

Also Read: Journal Voucher in Tally - Examples, & How to Enter Journal Vouchers in Tally

What Is a Sales Journal Entry?

Essentially, a sales journal is a record of a business transaction. This entry must be made when a customer makes a purchase. Taking an example, a customer purchases a pair of boots for ₹240 on credit. After the purchase, the customer charges ₹240 to their Accounts Receivable account. Then, they reverse the entry and charge the customer ₹252.

How to Make a Sales Journal Entry in Your Books?

A sales journal records credit sale transactions and keeps track of inventory and accounts receivable. Its format can vary depending on the business's nature and requirements.

Typically, the sale journal includes the following information: date, account debited, invoice number and credit. The date on which the sale was made must be mentioned in the sales journal entry. This date must match the invoice date in the trial balance.

You may need to make sales journal entries for goods or services, and this article helps you out in the same.

What Are Some Sales Accounting Entries Examples?

Credit Sales: Customers receive goods on credit, but they may not pay immediately. If so, you need to make a sales journal entry that debits the Accounts Receivable account and credits the Revenue account. In addition, you need to record a separate account for Sales Tax Payable, which represents the cost of producing the item. 

Finally, you need to record any sales taxes. The Revenue account should equal the total of the two accounts.

Sales Journal: The sales journal entry is created every time a business sells goods. The sales entry must match the invoice total and the money received. 

Generally, there are two types of sales accounting entries, cash sales and credit sales. Make sure to make the appropriate journal entry for each type. This way, your business can track the sales and the related Cost of Goods Sold.

Also, the sales return journal is used to record the sales return entries in Tally ERP 9 of the goods which are returned by the receiver.

Tips to Make a Sales Accounting Entry of the Services

The method used to create a sales journal entry will depend on the customer’s intention of paying. When you offer something to a buyer who is paying cash, you debit the cash account you have and debit your revenue account. This will increase business revenues and cash. Check the entries below:

Date

Account

Notes

Debit

Credit

X/XX/XXXX

Cash

 

X

 
 

Revenue

   

X

The transaction amount will not be all revenue for the company. The transaction will also be subject to sales tax.

You need to charge your account with Sales Tax Payable to reflect the increased sales tax obligation:

Date

Account

Notes

Debit

Credit

X/XX/XXXX

Cash

 

X

 
 

Sales Tax Payable

   

X

 

Revenue

   

X

Important Tip

The sales journal must be balanced. A journal entry for cash sales must show the order's date. The debit and credit amounts should balance so that the entry doesn't cause a mismatch on the balance sheet.

The journal entry for cash sales should also be recorded in the correct account. This account is a separate account from the sales revenue account. If the customer is a repeat customer, you can enter this information in both accounts.

Also Read: How to Create Purchase, Sales, Freight, and Discount Ledgers in Tally ERP 9

How to Make a Goods Sales Accounting Entry?

Now that you know about purchase and sales journal entries, let’s know how to implement them. If your company is involved in inventory, entry into your sales journals is likely to get more complicated. But don't be worried. It's just a matter of creating two more accounts to reflect the modifications to inventory.

When you’re selling a product to a client, then you're removing stock. Also, you're increasing the Cost of Goods Sold expense account. Also, your COGS is the amount it will cost you to make the product.

The accounts in the inventory journal entry sale comprise:

  • Sales Tax Payable (if applicable)
  • Cash (or Accounts Receivable)
  • Revenue
  • Inventory
  • COGS

Date

Account

Notes

Debit

Credit

X/XX/XXXX

Cash

 

X

 
 

Revenue

   

X

 

Sales Tax Payable

   

X

 

Inventory

   

X

 

COGS

X

   

How Do You Show the Credit Sales in Financial Statements?

  • Credit Sales: Whether they're credit or cash, both can generate profits and losses under the income side and the selling value of the goods.   
  • The Debtors: They are present assets that will be included on the assets portion of the balance sheet under the existing assets.
  • Discount: A discount offered to the dealer falls under the expense side of the profit and loss account, reducing the company's profit margin.  
  • Bank: The bank's balance is also an asset that is in its current state. Therefore, it will be displayed on the side of assets on the balance sheet, under current assets. In the case of receiving payment by customers, the amount in the bank will rise, while the creditors will decrease. So, the total amount of assets in the current account will not remain the same.

Benefits

  • By using the sales credit journal entry, the company will be able to check the amount due to its client on any day. Additionally, it can assist the company in keeping track of the outstanding balance of the customer if the customer comes back for credit sales.  
  • They assist in recording the transaction, which involves the sale of products on credit by the firm properly while keeping records of every credit sale that occurs.  

Limitations

  • When there are many transactions within the business, keeping the journal entry for sales credit for each business transaction becomes difficult and long-winded. It also increases the risk of errors by the person involved in the matter. 
  • If the person recording the transaction makes a mistake, it will reflect the incorrect trade in the company's books of accounts. 

Important Points

  • If the items are sold with credit to the purchaser of the product, then the sales account will be recorded in the company's books of account. This will increase the sales and show up on the company's income statement during the period of sale.  
  • If the items are sold for credits to buyers, the account receivable will be deducted, resulting in an expansion of the value of the company's assets because the funds will be paid by the third party later. This leads to the creation of assets for the business and appears on the company's balance sheet until it is settled.  

Accounting for Inventory

There are two kinds of accounting for inventory: the regular inventory method and the perpetual inventory method. Inventory accounting could use a simple Inventory T account to demonstrate the difference between credit and debit sales.

Perpetual Inventory System

This inventory system uses technology to account for inventory. All costs of selling goods are documented in this system. Every time a sale transaction has been completed, the software used in the accounting system updates all related software.

The perpetual inventory system is the principal method used by most companies since the system updates nearly instantly, and data is processed much faster than the regular system. 

The system is also more affordable due to technology usage, which minimises the time needed to complete a regular system.

Periodic Inventory System

This inventory method will count inventory and other goods physically on a timetable. This kind of system could be expensive due to the time required to determine inventory. The expense of this method is the reason it is typically carried out now and then.

The periodic system is employed to check the accounting performed by the perpetual system and track items stored in warehouses or storage as opposed to those at the retail store that are prepared to sell.

Conclusion

The entry of sales credit journals is crucial for companies selling their products on credit. When sales are made on credit, the accounts receivable accounts are debited. 

This is recorded on your balance statement of business as an asset unless the amount is credited against the sales. The sales account is credited and will be reported as revenue on the company's financial statements.

It assists in recording the transaction, which involves the sale of goods on credit by the firm promptly and timely, ensuring that every credit sale occurs. Now keep track of your cashflow and manage your incomes and expenses with ease by using the Cashbook app by Khatabook.

FAQs

Q: Is profit a debit or credit?

Ans:

Income always comes under the " Credit' and costs will always be considered "Debit". However, it might differ in the case of sending/receiving credit notes to decrease the income and costs.

Q: What is the double entry for sales?

Ans:

The entry is a debit to the inventory (asset) account and a credit to the cash (asset) account. If we talk about double entry for sales, the debit to the inventory "asset" account & the credit to the money "asset' account.

Q: How can you show the profit in the sales journal entry?

Ans:

A single type of journal entry has the entries for revenue and cost to be identified on the statement of income from work that's in progress and is available on the balance sheet.

Q: What is a sales journal entry example?

Ans:

If we talk about an example to understand a sales journal in a better way, it's helpful to record all sales that you make in the account. Also, it is sometimes referred to as a credit sales journal.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.