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What is the Journal Entry for Credit Sales and Cash Sales?

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Journal Entry for Credit Sales and Cash Sales

Sales are a part of everyday business, they can either be made in cash or credit. In a dynamic environment, credit sales are promoted to keep up with the cutting edge competition. Accounting and journal entry for credit sales include 2 accounts, debtor and sales. In case of a journal entry for cash sales, a cash account and sales account are used.

The person who owes the money is called a “debtor” and the amount owed is a current asset for the company. Companies are careful while extending credit as it may lead to bad debts for the business.

 

Accounting and Journal Entry for Credit Sales

In the case of credit sales, the respective “debtor’s account” is debited, whereas “sales account” is credited with the equal amount.

Journal Entry for Credit Sales
Debtor’s Account Debit
 To Sales Account Credit

Golden rules of accounting applied (UK Style)

  • Debtor’s A/C (Type – Personal) > Rule – Dr. the Receiver
  • Sales A/C (Type – Nominal) > Rule – Cr. all Incomes and Gains

Modern rules of accounting applied (US Style)

  • Debtor’s A/C (Type – Asset) > Rule – Dr. the Increase in Assets
  • Sales A/C (Type – Revenue) > Rule – Cr. the Increase in Revenue

 

Example – Journal Entry for Credit Sales

Post a journal entry for – Goods sold for 5,000 on credit to Mr Unreal.

Related Topic – Journal Entry for Credit Purchase and Cash Purchase

 

Accounting and Journal Entry for Cash Sales

Cash sales, on the other hand, are simple and easy to account for. In the case of cash sales, the “cash account” is debited, whereas “sales account” is credited with the equal amount.

Journal Entry for Cash Sales
Cash Account Debit
 To Sales Account Credit

Golden Rules applied (UK Style)

  • Cash A/C (Type – Real A/C) > Rule – Dr. What Comes in
  • Sales A/C (Type – Nominal) > Rule – Cr. all Incomes and Gains

Modern Rules applied (US Style)

  • Cash A/C (Type – Asset) > Rule – Dr. the Increase in Assets
  • Sales A/C (Type – Revenue) > Rule – Cr. the Increase in Revenue

 

Example – Journal Entry for Cash Sales

Post a journal entry for – Goods sold for 5,000 in cash to Mr Unreal.

 

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Author:ahujasahil(test)

He is the Founder of AccountingCapital.com with a single aim i.e. to "Simplify Accounting and Finance". Sahil holds a Bachelors in Commerce and a Masters in Finance. He loves whiteboard explanations, helping others, and travelling. Sahil's corporate experience extends over 6 yrs with eminent names such as Ameriprise Financial & AXA Insurance.