Double Entry for Sale Transactions (Cambridge International AS Accounting)

Cash sales

Spec point — preparation of ledger accounts

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

  • This is because the profit is increasing
  • The capital is increasing

Exam Hint 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	$
Final answer: 2024 Final answer: Jan 1	Final answer: Sales	Final answer: 500

Sales Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 1	Final answer: Cash	Final answer: 500

Credit sales

Spec point — preparation of ledger accounts

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's 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

  • This is because the profit is increasing
  • The capital is increasing

Exam Hint Note that no entries are made in the cash or bank accounts as 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	$
Final answer: 2024 Final answer: Jan 1	Final answer: Sales	Final answer: 500

Sales Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 1	Final answer: Alex	Final answer: 500

Payments from credit customers

Spec point — preparation of ledger accounts

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's 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	$
Final answer: 2024 Final answer: Jan 4	Final answer: Alex	Final answer: 100

Alex Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 4	Final answer: Bank	Final answer: 100

Discount allowed

Spec point — preparation of ledger accounts

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 book of prime entry is the cash book

How do I record discount allowed in the ledger accounts?

• Credit the trade receivable's 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

  • This is because the profit is decreasing
  • The capital is decreasing

• 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

Exam Hint 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:

• Calculate the discount

10% of $400 = $40

• Calculate the amount Alex pays

$400 - $40 = $360

Discount Allowed Account

Date	Details	$**	Date	Details	$
Final answer: 2024 Final answer: Jan 4	Final answer: Alex	Final answer: 40

Bank Account

Date	Details	$	Date	Details	$
Final answer: 2024 Final answer: Jan 4	Final answer: Alex	Final answer: 360

Alex Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 4	Final answer: Discount Allowed	Final answer: 40
			Final answer: Jan 4	Final answer: Bank	Final answer: 360

Sales returns

Spec point — preparation of ledger accounts

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's 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

  • This is because the profit is decreasing
  • The capital is decreasing

• 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	$
Final answer: 2024 Final answer: Jan 4	Final answer: Alex	Final answer: 100

Alex Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 4	Final answer: Sales returns	Final answer: 100