A business tries to make a profit by selling goods or services to customers. This creates revenue or income for the business.
Sales might be for cash or (coin, by debit card, credit card, cheque or by some less common method such as banker’s draft) or on credit.
The following documents might be used in a system designed to account for sales.
Sales invoice: A request for payment from the customer for goods delivered. Invoices normally show a date, details of transaction and payment terms.
Credit note: Issued when a customer returns goods and the business agrees to this. The business issues a credit note to acknowledge that the amount specified is no longer owed to them by the customer.
2. Recording sales
Sales day book
The sales day book is one of the books of prime entry. It is used to make an initial record of sales on credit. Credit sales transactions are entered in the sales day book as a list.
Double entry and updating the receivables ledger
Periodically (daily, weekly, monthly) a total for all transactions is posted to sales and the receivables control account in the general ledger, and the individual amounts used to update the customers’ individual balances in the receivables ledger.
· The total value of the transactions (since the previous time that entries were posted to the ledger) is transferred as a double entry to the general ledger:
· Each individual transaction is transferred to the receivables ledger and recorded in the account of the individual customer which is debited with the value of the transaction.
Responsibilities
The duty of the main accountant is to maintain the general ledger and extract financial information from it. The main accountant will also oversee accounting assistants (accounts clerks) whose duties are to maintain the day books, subsidiary ledger and thus the list of balances.
3. Recording sales returns
Sales returns day book
The sales returns day book is a book of prime entry that records goods returned by customers (perhaps because they are damaged or of unacceptable quality).
When goods are returned, a credit note is issued to the customer.
Double entry and updating the receivables ledger
Periodically (daily, weekly, monthly) a total for all returns is posted to the general ledger and the individual amounts used to update the customers’ individual balances in the receivables ledger.
The receivables ledger contains the accounts for each customer who is sold items on credit. Each receivables account shows how much the individual customer has purchased on credit, details of sales returns (i.e. any credit notes), how much he/she has paid and what he/she currently owes.
4. Discounts allowed
Introduction
Businesses sometimes give discounts to customers.
There are two main types of discount:
· trade discount; and
· settlement discount (or cash discount).
Trade discount
This is price reduction given to a customer. The invoice is issued at the reduced amount so there are no double entry problems caused by this type of discount.
There is simply a sale at a lower price.
Settlement discounts
A settlement discount might be offered in order to persuade credit customers to pay earlier.
When a business makes a sale it does not know whether the customer will take advantage of the settlement discount or not so the invoice is issued at the full amount. An adjusting entry is made if a customer subsequently takes the discount.
If a discount is taken it is known as a discount allowed from the point of view of the seller and a discount received from the point of view of the buyer. Discounts received and discounts allowed are recorded in the ledger accounts.
Discounts allowed
Discounts allowed are settlement discounts that a business offers to its credit customers. It is up to the customer to decide whether to pay the full amount or to pay the smaller amount earlier.
Accounting for discounts allowed
A business will only know if a customer is taking a settlement discount that has been offered when the payment is received. If the customer has taken the discount then a smaller payment will be received. Discounts allowed to customers are recorded in a discounts allowed account.
This is an expense account.
Discounts allowed do not affect the total figure for sales in the period. In this respect they differ from sales returns, which do reduce total sales revenue.
· Discounts allowed are accounted for separately as an expense for the period.
· They are not accounted for as a deduction from total sales revenue.
Discounts allowed and the receivables ledgers
Discounts allowed must also be recorded in the individual customer accounts in the receivables ledger.
5. Receivables control account
A receivables ledger control account is the name given to the account in the general ledger for total receivables. A control account is an account that records total amounts – in this case, total amounts for receivables.
The receivables ledger control account records all transactions involving credit customers.
· Debit entries in the receivables control account are transactions that add to the total amount of receivables.
· Credit entries in the receivables ledger control account are transactions that reduce the total amount of receivables.
Dishonoured cheques
These are cheques received from customers where subsequently the bank refuses to make payment.
When a business receives a cheque from a customer it recognises that as an amount paid. If the business presents the cheque to the bank for payment and the bank refuse to accept it (perhaps because of insufficient funds in the customer’s account) the business is still owed the money and must reverse the original entry (Dr Receivables, Cr Bank).
Entries not recorded in the receivables control account
Only transactions that relate to credit sales are recorded in the receivables ledger control account.
The following transactions are not recorded in the receivables ledger control account:
· Cash sales (for which the entry is Dr Bank, Cr Sales);
· Changes in the allowance for irrecoverable debts account.
The balance on the receivables control account might be described as trade receivables on the face of the statement of financial position.
6. Terminology
Sales day book: Sales journal
Receivables ledger: Debtors ledger, Sales ledger
Receivables control account: Receivables ledger control account, Sales ledger control account, Total sales control account, Debtor control account, Account receivable control account
No comments:
Post a Comment