Recording Sale Transactions (Cambridge (CIE) IGCSE Accounting)

Revision Note

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

  • Note that no entries are made in the trade receivables accounts

    • This is because the goods were paid for straight away

    • Therefore the customer does not owe the business any money

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?

  • 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

  • Note that no entries are made in the cash or bank accounts

    • No cash has been exchanged yet

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?

  • 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

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?

  • 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 sales invoice is used as the business document

    • The terms of the cash discount will be detailed

  • The book of prime entry is the cash book

How do I record discount allowed 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 discount allowed account in the nominal ledger

  • 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

Examiner Tips and Tricks

Questions will normally:

  • Tell you the percentage for the discount allowed

  • 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

$



2024

Jan 4

Discount Allowed

40

Jan 4

Bank

360

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 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 receivables 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

Case Study

Tina is a sole trader. Tina allows a 10% cash discount if goods are paid for within a month.

On 1 January, Dave buys goods on credit costing $500 from Tina. Tina records this by debiting Dave's account and crediting the sales account.

On 15 January, Dave benefits from the cash discount and sends Tina a cheque for $450. Tina records this by debiting $450 to the bank account and $50 to the discount allowed account. Tina balances this by making credit entries in Dave's account totalling $500.

On 22 January, Tina is notified by her bank that Dave's cheque has been dishonoured. Tina records this by crediting $450 to the bank account and $50 to the discount allowed account. Tina balances this by making debit entries to Dave's account totalling $500.

Here are how the entries appear in Tina's books.

Sales account

Date

Details

$

Date

Details

$

Jan 1

Dave

500

Bank account

Date

Details

$

Date

Details

$

Jan 15

Dave

450

Jan 22

Dave

450

Discount allowed account

Date

Details

$

Date

Details

$

Jan 15

Dave

50

Jan 22

Dave

50

Dave account

Date

Details

$

Date

Details

$

Jan 1

Sales

500

Jan 15

Bank

450

Jan 22

Bank

450

Jan 15

Discount allowed

50

Jan 22

Discount allowed

50

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

  • 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

Worked Example

Alex returns $100 worth of goods to a business on 4 January 2024. Alex had not yet paid the invoice for the goods. Record this transaction in the ledger accounts for the business.

Answer

Sales Returns Account

Date

Details

$

Date

Details

$

2024

Jan 4

Alex

100



Alex Account

Date

Details

$

Date

Details

$



2024

Jan 4

Sales returns

100

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 bank account in the nominal ledger

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

    • The asset is decreasing

  • Debit the trade receivables account in the sales ledger

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

Case Study

Tina is a sole trader. Tina allows a 10% cash discount if goods are paid for within a month.

On 1 January, Dale buys goods on credit costing $500 from Tina. Tina records this by debiting Dale's account and crediting the sales account.

On 15 January, Dale forgets about the cash discount and sends Tina a cheque for $500. Tina records this by debiting $500 to the bank account. Dale is still entitled to the discount so Tina debits $50 to the discount allowed account. Tina balances this by making credit entries in Dave's account totalling $550.

On 22 January, Dale asks for a refund for the $50 extra that he paid.

On 23 January, Tina sends Dale a cheque for $50. Tina records this by crediting the bank account and debiting Dale's account.

Here are how the entries appear in Tina's books.

Sales account

Date

Details

$

Date

Details

$

Jan 1

Dale

500

Bank account

Date

Details

$

Date

Details

$

Jan 15

Dale

500

Jan 23

Dale

50

Discount allowed account

Date

Details

$

Date

Details

$

Jan 15

Dale

50

Dale account

Date

Details

$

Date

Details

$

Jan 1

Sales

500

Jan 15

Bank

500

Jan 23

Bank

50

Jan 15

Discount allowed

50

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Dan Finlay

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Dan graduated from the University of Oxford with a First class degree in mathematics. As well as teaching maths for over 8 years, Dan has marked a range of exams for Edexcel, tutored students and taught A Level Accounting. Dan has a keen interest in statistics and probability and their real-life applications.

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