Accounting for sale

THE SYSTEM OF ACCOUNTING

Volume III

WRITTEN BY:SYED AQEEL RAZAMASTER OF COMMERCE & POLITICS

Sales 1

ACCOUNTING FOR SALE

The sale in accounting means the commodities or services of economical value are purchased by someone and someone must receive the commodities or services in good condition underpayment in cash or in credit.

Although the sale is confirmed after receiving the cash when in business some parties pay cash against goods and some parties take goods and pay later but in accounting the profit is confirmed when a sale occurs and the goods delivered and the matter of payment is between the seller and the purchaser. If the purchaser does not pay the debt, the seller will do credit party’s payable account and considers it expense under debiting bad debt expense account.

The commodities which were sold may be returned in case of any defect under mutual understanding. The return of goods does contra effect on sale.

No business is made without a sale.

<THE SYSTEM OF ACCOUNTING < VOLUME III< SYED AQEEL RAZA<[email protected]>

Sales 2

THE TYPES OF SALE

All sales transactions require exchanging value in shape of cash. The cash which receives on the spot on account of selling goods comes under cash transaction and that cash which was not received in the time of handing over goods comes under credit sales and they record under double entry system create following two type of sales as to cash sales and credit sales.

Cash sales may offer a discount for quick sales but credit sales may have discount but increase in price and many legal conditions under the agreement.

CASH SALES:

Cash (debit)Sales (Credit)

(To record sales as cash)

Cash increases in liquid asset accounts of the entity and sales increases in the income.

CREDIT SALES:

Accounts Receivable/Party name (Debit)Sales (Credit)

The accounts receivable/party name account increases in liquid asset accounts and sales increases in the income.

Cash sale and credit sale are both the technique of sale.<THE SYSTEM OF ACCOUNTING < VOLUME III< SYED AQEEL RAZA<[email protected]>

Sales 3

THE PROCEDURE OF SALE:

On receiving a purchase order, the seller issue sales invoice to purchaser and deliver it to the place of purchaser along with the delivery order. In case of any defect in goods, the purchaser informs to the seller about the defect under debit memorandum and seller credit the account of purchaser issuing him credit memorandum.

The cash sale does not require many formalities like credit sale in which the matter of giving and take is occurred on the spot and in case of warranty or guarantee of the product the condition of sale applies either credit or on cash payment.

The credit sales are recorded under sales journal and transferred to in subsidiary ledger parties’ account under control account in general ledger account as accounts receivable;

Accounts receivable (debit)Sales (Credit)

The minimum procedure and maximum sale must be the aim of the seller.


Sales 4

SALE RETURN:

The sale return in case of a defect in goods from purchaser reduces the amount in balance of Purchaser account in seller’s ledger. The sales return and allowance journal are for recording sales return and allowances and at the end of the month sales returns and allowances are transferred to the subsidiary ledger of parties under reference sales journal and the total amount of sales return and allowances is transferred to control account of accounts receivable;

Sales return & allowances (debit)Accounts receivable (credit)

The sale return may apply on credit sale and on cash sale as;

Sales return (debit)Accounts receivable (credit)

Sales return (debit)Cash (credit)

The sale return is contra revenue account and reduces the sale in the income statement.

Return in the sale is under question for the seller.<THE SYSTEM OF ACCOUNTING < VOLUME III< SYED AQEEL RAZA<[email protected]>

Sales 5

SALES DISCOUNT:

In order to increase sale or to sell old stock or for early payment, the sales discount or reduction in the price of a product is given to the Purchaser. The Sales discount is a contra revenue account and reduces the sale in the income statement.

The sales discount is used in place of sales which reduce the amount of balance in account receivable of party when the sales discount is given, the journal entry is recorded as;

Sales Discount (debit)Accounts receivable (credit)

The discount in sales shows the stability of the product.


Sales 6

BAD DEBT EXPENSES

The cause of bad debt expense is of credit sale wherein the seller sells products to all parties wherein some pay the debt in time and some pay after time and some do not pay the debt because of many reasons thus the category of customer is made as to fine customers, good customers, the best customers and bad customers.

Then we can say the bad debt is the debt which recoverable chance is equal to not receive and in case of receiving the bad debt, the entry of bad debt and reversal entry are made as;

Bad debt Expense (debt)Accounts receivable (credit)

Account receivable (debit)Bad debt (credit)

The bad debt is an expense which reduces gross income in the income statement.

The result of sale war is bad debt expense.


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Accounting for sale