Recording Sale Transactions (Edexcel IGCSE Accounting)
Revision Note
Written by: Dan Finlay
Reviewed by: Lucy Kirkham
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 source document
The book of original entry is the cash book
Cash sales do not get recorded in the sales day book
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 source document
The book of original entry is the sales day book
How do I record a credit sale in the ledger accounts?
Debit the trade receivable account in the receivables 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, remittance advice and receipts are used as source documents
The book of original 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 receivables 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 source document
The terms of the cash discount will be detailed
The book of original original is the cash book
How do I record discount allowed in the ledger accounts?
Credit the trade receivable account in the receivables 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 |
Sales Returns
What is a sale return?
A sale return is when a customer returns some goods
It is referred to as a return inwards
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 source document
The book of original entry is the sales returns day book
How do I record a sale return in the ledger accounts?
Credit the trade receivable account in the receivables ledger
This is because the business is owed less money from a credit customer
The asset is decreasing
Debit the returns inwards (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
Returns Inwards Account
Date | Details | $ | Date | Details | $ |
2024 Jan 4 |
Alex |
100 |
Alex Account
Date | Details | $ | Date | Details | $ |
2024 Jan 4 |
Returns inwards |
100 |
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