SALES BOOK AND SALE RETURN BOOK

Accounting for Sales

As sale results in increase in the income and assets of the entity, assets must be debited whereas income must be credited. 

A sale also results in the reduction of inventory, however the accounting for inventory is kept separate from sale accounting as will be further discussed in the inventory accounting section.

A sale may be made on cash or on credit.

Cash Sale

When a cash sale is made, the following double entry is recorded:

Debit	Cash
Credit	Sales Revenue (Income Statement)

Cash is debited to account for the increase in cash of the entity.

Sale Revenue is credited to account for the increase in the income.

Credit Sale

In case of a credit sale, the following double entry is recorded:

Debit	Receivable
Credit	Sales Revenue (Income Statement)

The double entry is same as in the case of a cash sale, except that a different asset account is debited (i.e. receivable).

When the receivable pays his due, the receivable balance will have be reduced to nil. The following double entry is recorded:

Debit	Cash
Credit	Receivable

 

 

 Sales Return - Credit Sale

In case of credit sale, the following double entry must be made upon sales returns:

Debit	Sales Return (decrease in income)
Credit	Receivable (decrease in asset)

 

Example:

Bike LTD sells a mountain bike to XYZ for $100 on credit. XYZ later returns the bike to Bike LTD due to a serious defect in the design of the bike.

The initial sale will be recorded as follows:

		$	$
Debit	XYZ (Receivable)	100
Credit	Sales		100

Upon the return of bike, the following double entry will be passed:

		$	$
Debit	Sales Return	100
Credit	XYZ (Receivable)		100

No further entry will be required as the receivable due from XYZ has been reversed.

Sales Returns - Cash Sales

In case of cash sale, the following double entry must be made upon sales returns:

Debit	Sales Return (decrease in income)
Credit	Payable (increase in liability)

 

Example:

 

Bike LTD sells a mountain bike to XYZ for $100 on cash. XYZ later returns the bike to Bike LTD due to a serious defect in the design of the bike.

The initial sale will be recorded as follows:

		$	$
Debit	XYZ (Receivable)	100
Credit	Sales		100

Upon the return of bike, the following double entry will be passed:

		$	$
Debit	Sales Return	100
Credit	XYZ (Payable)		100

When Bike LTD will pay XYZ $100 in respect of the sales return, the following double entry will be recorded:

		$	$
Debit	XYZ (Payable)	100
Credit	Cash		100