Recording Cash Sales

This is one of the easiest and most straightforward transactions.

Real life

A customer walks into your store, picks up a ceramic mug (assuming you sell ceramic mugs!), and brings it to the sales desk. You calculate the price, including taxes, and tell the customer how much it will cost all together. The customer hands you the money; you make change and record the transaction, either in the cash register or by using an invoice book (or computerized program). Whichever method you use to record the transaction, you will provide a copy of the receipt or invoice to the customer and will retain one for your records. If you are using a cash register, there will be an internal tape recording the transaction. If you use an invoice book, it should be at least a two-part form with carbon. If you are using a computer program, make certain that it prints at least two copies.

 

Accounting world

In accounting language, a financial transaction has occurred because you have traded something of value (the mug) for something of equivalent value (in this case, cash).

If you are a retailer and you use a cash register, you most likely will run a register report at the end of the day and record that day's transactions as a single item. If you are not using a cash register, you will record each sales transaction as it occurs.

The accounting entry generated for this type of sale is as follows:

 

            DR     Cash                            $11.50

            CR     Sales                                                 $10.00

            CR     Sales tax liability                                   1.50

 

This increases your sales total by the $10.00 that was the sales price of the item. The sales taxes that must be remitted to the government go into a liability account, because you have a liability to send them to the government later. (For more information on remittances.) The $11.50 is, of course, the amount of cash you received from the transaction. Notice that debits equal credits, maintaining the double-entry rule.

If you use a computerized system, there will most likely be a module called the sales journal. In this area, you will record the amount of the sale, the type and amount of taxes, and how the invoice was paid. This recording serves two functions. It provides the invoice to the customer as a record of the sale and it also records the accounting transaction at the same time. You just click a button to post the transaction to the accounting records and print off the invoice. All the debits and credits happen behind the scene but they still happen as described above.