Sales Credit Journal Entry | How to Record Credit Sales? (with Examples)

What is Sales Credit Journal Entry?

Sales Credit Journal Entry refers to the journal entry recorded by the company in its sales journal during the period when any sale of the inventory is made by the company to the third party on credit, wherein the debtors account or account receivable account will be debited with the corresponding credit to the Sales account.

How to Record Entry of Sales Credit?

When the goods are sold on credit to the buyer of the goods then the account receivable account will be debited which will lead to the increase in the assets of the company as the amount is receivable from the third party in future and corresponding credit will be there in the Sales account which will lead to the increase in the revenue of the company. The entry to record the Sales on the Credit is as follows:

When the cash against the good sold on credit is received by the company then the Cash Accounts will be credited as there is the receipt of the cash against the goods sold on credit and there will be corresponding credit in the accounts receivable accounts as the account was initially debited at the time of sales of goods and thus will be credited once the amount is received. The entry to record the receipt against the Sales on the Credit is as follows:

Example of Sales Credit Journal Entry

For example, there is company A ltd. which deals in selling the different products in the market. On 1^st August 2019, it sold some goods to one of its customers on credit amounting to $ 100,000. At the time of selling the goods it was decided that the customer will make the whole payment against the goods received after 15 days. On 15^th August 2019, a customer paid the whole amount to the company. Pass the necessary journal entry to record the sales of the goods on the credit and for the receipt of cash against the sales of goods.

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Solution

On 1^st August 2019, when the goods were sold on credit to the buyer of the goods, then the account receivable account will be debited with the corresponding credit to the Sales account. The entry to record the sales on the credit is as follows:

On 15^th August 2019, when the customer paid the whole amount in cash to the company against the goods sold on credit on 1^st August 2019, then the cash accounts will be credited with the corresponding credit in the accounts receivable accounts. The entry to record the receipt against the sales on the credit is as follows:

Advantages

The advantages related to the sales credit journal entry are as follows:

The sales credit journal entry helps in recording the transaction involving the sale of goods on credit by the company properly keeping the track of each and every credit sales involved.
With the help of a sales credit journal entry, the company can check the balance due to its customer on any date. This will help the company checking the balance outstanding of the customer in case the customer approaches again for the credit sales.

Limitations

The limitations related to the sales credit journal entry are as follows:

If the person recording the transaction commits any mistake then it will show the wrong transaction in the books of accounts of the company.
When a large number of transactions is involved in the company, then recording the sales credit journal entry for each and every transaction of the company becomes problematic and time-consuming and thus also increases the chances of mistakes by the person who is involved in such matter.

Important Points

The different important points related to the sales credit journal entry are as follows:

When the goods are sold on credit to the buyer of the goods then the account receivable account will be debited which will lead to the increase in the assets of the company as the amount is receivable from the third party in the future. This will lead to the creation of the asset of the company and will be shown in the balance sheet of the company unless settled.
When the goods are sold on credit to the buyer of the goods then the sales account will be credit in the books of accounts of the company. This will lead to an increase in the revenue of the company and thus it will be shown in the income statement of the company in the period in which such sale is made.

Conclusion

Sales credit journal entry is important for companies that sell their goods on the credit to its customers. At the time of sales on credit, accounts the receivable account will be debited which will be shown in the balance sheet of the company as an asset unless the amount is received against such sales and the sales account will be credited which will be shown as revenue in the income statement of the company.

The sales credit journal entry helps in recording the transaction involving the sale of goods on credit by the company properly keeping the track of each and every credit sales involved.