Sales Journal Definition
Sales Journal is a type of journal that is used to record credit sale transactions of the company and is used for the purpose of maintenance and tracking the account receivable and inventory account. Management does sale transactions entries in the sales journal on a daily basis. Sales Journal is Principal book of Credit Sale Transactions. The information recorded in it depends on the nature and requirement of each business.
Format of Sales Journal comprises of six columns:- Date, Account debited, Invoice No., Accounts Receivable- Dr. Sales- Cr. And Cost of goods sold- Dr. Inventory- Cr.
Sales Journal Entry Format
Given below is the format of the sales journal entry.
- Date: This Column is used to mention the date on which entity sold the goods. Recording date and Invoice date should be the same.
- Account Debited: In this column, Name of Customer to be recorded who is purchasing the goods on credit only from an entity.
- Invoice No: Sale invoice No. to be mentioned in this column.
- PR: PR stands for Post Reference Entries and are recorded to the relevant account (Customer Account) on a daily basis. Under this column enter certain no. and the same no. to be allotted to Customer Account for tracking.
- Account Receivable and Sales: In this column Amount to be mentioned which will receive from the customer. Account receivables to be debited and Sale to be credited by the same amount.
- Cost of goods sold and inventory: In this column, cost of price of goods sold to be mentioned and cost of goods sold to be debited and inventory (Stock) Account to be credited by the same amount.
Example of Sales Journal Entry
M/s XYZ Company sold the below goods on 01st April 2020.
- To M/s Albert Ltd. For $ 2,00,000.00 on credit and cost of goods sold was $ 1,50,000.00 through invoice No. 140.
- To M/s Michel Ltd. For $ 3,00,000.00 on credit and cost of goods sold was $ 2,25,000.00 through invoice No. 141.
- To L&T Ltd. For $ 5,00,000.00 on credit and cost of goods sold was $ 3,75,000.00 through invoice No. 142.
- To M/s Global Limited for $ 50,000.00 on credit and cost of goods sold was $ 37,500.00 through invoice No. 143.
Create a credit sales journal entry for M/s XYZ Company.
- Entity debited the M/s Albert Ltd for $ 2,00,000.00 as account receivables and credited the credit sales by the same amount and also debited the Cost of goods sold by $ 1,50,000.00 and credited the inventory Account.
- Entity debited the M/s Michel Ltd. for $ 3,00,000.00 as account receivables and credited the credit sales by the same amount and also debited the Cost of goods sold by $ 2,25,000.00 and credited the inventory Account.
- Entity debited the L&T Ltd. for $ 5,00,000.00 as account receivables and credited the credit sales by the same amount and also debited the Cost of goods sold by $ 3,75,000.00 and credited the inventory Account.
- Entity debited the M/s Global Limited for $ 50,00.00 as account receivables and credited the credit sales by the same amount and also debited the Cost of goods sold by $ 37’500.00 and credited the inventory Account.
- At the time of recording the credit sale transaction in the sales journal, each such transaction is analyzed in the debit and credit aspect.
- All credit sale transaction entered supported with invoices.
- The amount, nature of transactions, customer name, inventory cost, etc. are mentioned in one line.
- There is no such requirement to mention a long explanation for every transaction.
- It allows an entity to save time and avoid repetition in the journalizing.
- All credit sales entries are grouped in one journal.
- It is base for finalization of trial balance.
- An entity should pass correct entries in the sales journal for accuracy of trial balance; if entity passes any wrong credit sales entry in it then this will be mismatched between sales account and account receivable account.
- It increases the burden of accounting works on entity because an entity can also identify the credit sale transaction from Account receivable account.
- Trial Balance, Accounts receivable account, inventory account will not be tallied if there would be a difference or mismatch in the Sales Journal.
- An entity needs to pass the entries in this journal very careful.
- It increases the manpower cost of the entity.
- Closing Balance of Account Receivable Account and Credit Sale Account should be matched in Sales Journal otherwise there will not be beneficial.
- The entity should have a separate human resource for doing credit sales entries in a sales journal.
- Trial Balance can’t be matched if the Sales Journal will be mismatched.
- The entity can pass the sales credit transactions through Journal also.
- It increases the accounting burden on the entity.
- The entity should pass the sales credit entries correctly so that further time can be saved on errors.
- The entity should use the format specified as per accounting policies and guidance notes.
- Separate employees should be hired by the entity for doing entries of credit sales transactions.
- It is used for the purpose of maintenance and tracking the account receivable account and inventory account.
- The entity should check and reconcile the balances of the Sales Journal on a periodical basis.
An entity should maintain Sales Journal in the prescribed format by generally accepted accounting principles for an accounting of credit sale transactions so that Debtors records and credit sales records can be managed.
Its usage is overall beneficial for an entity because it helps for credit sales amount losses, if the company does not maintain sales journal and forgot to pass any credit sale entry then it will be a loss for an entity so entity should maintain the sales journal.
This has been a guide to what is Sales Journal and its definition. Here we discuss the format of the credit sales journal entry with the help example, advantages, disadvantages, and limitations. You can learn more about accounting from the following articles –