Double Entry Bookkeeping Lesson - Worked Example:

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Accounting for Sales (on Credit)

This example includes:
Sales Invoices, Revenue,
Trade Debtors, Bank Receipts, Profit & Loss

sales on credit bookkeeping

1. UNDERSTAND: Basic Principles of Accounting for Sales

Raising a Sales Invoice and allowing credit to a customer creates revenue and a trade debtor.

Debtors are assets and are held on the Balance Sheet.

Settlement of a debt converts the Trade Debtor to another more 'liquid' asset: Cash.

Sales Revenue is accounted for in the Profit and Loss Account for the period and is not impacted by the settlement of the debt.

Related Articles:

The worked example below shows the accounting entries for raising a Sales Invoice and its subsequent settlement.


3. Accounting for Sales: Bookkeeping Worked Example

Scenario:

During April Zelda: Zombie Slayer slays 23 zombies for a customer, Surprise Pet Foods (SPF).

She charges £100 a zombie.

Her business ZZS invoices SPF for £2,300 at the end of April.  Credit terms are 30 days.

SPF settle fully by BACS in May.

accounting-for-sales-lessonCash is King (or Queen).

Requirements:

For ZZS:

1.  Show the double entry accounting entries for the sale and subsequent settlement.

2. Show the Account Balances at end of April and May.

Ignore taxes.


SOLUTION: Double Entry Accounting Entries and Balances

accounting-for-sales-double-entry

Keeping Accounting Simple Stupid!

One of our missions here at the Alternative Accountant is to provide simple, practical worked examples of double entry accounting across a range of real life Accounting Scenarios.

The reality of Accounting is that however sophisticated finance systems and ERP systems purport to be, the basic, simple principles of double entry accounting must - and will - always hold true.

What's more, these systems are only as good as the integrity of the processes and controls feeding them with data. As anyone who works in accounting knows, processes ALWAYS break down at some point!

A good grounding in double entry principles and mechanics is essential to understand and resolve the resulting issues and risks efficiently and correctly.


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