What is a Sales Ledger?
Sales ledger is a ledger entry that records any sale in the book of records even if the payment for the sale is received or yet to be received. They not only record sales but also sales returns which is a negative entry since the product that was sold is returned. The typical sales ledger format contains information like the date of sale, invoice number, amount of sale, products sold, name of the customer, tax information, freight charges, etc. The general ledger records the cumulative amount which is summarized systematically in the sales ledger; it is posted in the sales account. It is used to record the sales and the cash as and when it is received and how much is owed to the business.
Example of Sales Ledger Format
Let’s take an example.
Ryan’s Inc deals in industrial kitchen products business and only makes one product. A sales ledger for Ryan’s inc is put down in the grid below which shows all the sales done between January to June along with the payments which have been received and those for which the payment is pending. By the end of June, all invoices except two (highlighted) have been settled. A sales ledger format for these transactions is shown below:
The sales ledger format shows the date at which the sale was done along with the actual sale amount and the VAT information regarding the same. It also shows the gross amount which is to be paid by the customer. The last column shows the date on which the payment was received from the customer for the products that were sold. The sales ledger in the above example shows the actual sale amount which is $20445. It also shows the amount that was paid by the customers for the products that were sold i.e. $16,215. The remaining amount of $4,230 is still pending to be paid by the customer.
In this way, it becomes easy for a business to keep track of all its sales and the accounts receivables that are owed to the business. This ledger enables the business to record the sale of its products along with the information of the buyer and the amount that is owed. It aims to provide detailed information regarding the sale and any information regarding sales returns, discounts, and payment information.
Advantages of Sales Ledger
Some of the advantages are as follows.
- They help businesses to keep detailed information regarding the sales that are made.
- It helps in backtracking in case of any issue that arises in the future like sales return or any similar issues.
- They help in keeping the general ledger precise since all the detailed information is recorded in the sales ledger.
- Facilitates businesses to keep track of all the payments that are received and the payments that are yet to receive for the sale that has been made.
- it is the golden source for the sales amount that will be recorded in the income statement.
- At times of mismatch in the sales account, They can be used to research and understand what resulted in the mismatch.
- Auditors can dig deep into this ledger and can verify if the sales reported by the business is legitimate.
Some of the disadvantages are as follows.
- It requires effort, knowledge, and skills to maintain it.
- It records a transaction even before the payment is received hence a payment that is yet to be received will need to be tracked until the payment is made by the customer.
- Sales account has cumulative information on the sales ledger and hence might not be worth the efforts unless something goes wrong terribly.
- It amounts can be posted in the sales account as frequent as every day or maybe recorded once in a month (month-end closing).
- The general ledger does not contain detailed information on the sales account since it will be a lot of information for the general ledger regarding one account. Instead, they will have all the minute details regarding sales information.
- Initially, They were maintained manually by hand but with technological advancement, It is an offbeat term. Although a user can search for a particular sale using the sale information like invoice number or amount or the sale date, he or she is accessing the sales ledger.
- It is an important information provider when detailed information regarding a particular transaction is required.
- Auditors tend to peep into the sales ledger by looking at random sales invoices to investigate the company’s reported sales figure.
- It contains all information regarding any sale that has been done by a business regardless of the payment being received.
- They also record information regarding sales returns; any sale that has been returned by the customer for whatsoever reason needs to be recorded in the sales ledger.
- A sales account in the general ledger has a cumulative value or information regarding the actual sales ledger.
- By looking at this ledger, detailed information regarding the revenues can be obtained.
- It contains important information like date of sale, invoice number, name of the customer, amount of sale to name a few.
- They record sales, sales records, payments, and discounts.
This has been a guide to what is sales ledger and its meaning. Here we discuss the example of sales ledger format along with advantages and disadvantages. You can learn more about financing from the following articles –