Sales journal

What is the Sales Journal? – Definition

A sales journal is used to record the merchandise sold on account. Any entry relating to the sale of merchandise for cash is recorded in the cash receipt journal.

Explanation

Just as the purchases journal, while preparing a sales journal only credit sales are recorded. Cash sales are recorded in the Cash Book. It should be noted that sales of goods are recorded in the sales journal. Whereas sales of assets like Land, Building, Furniture, etc. are recorded in the Sales Journal because they are sold infrequently. On the other hand, assets sold on cash recorded in the Cash Book and sale of assets on credit are recorded in the proper journal.

Format of sales journal

The sales journal has five columns to record the necessary information relating to credit sales. Its format is given below:

Format of sales journal

(1). Date column is used to record the date of sales made on account.

(2). Account debited column is used to record the title of customers (account title) to whom merchandise are sold on account.

(3). Invoice number column is used to record the invoice number relating to credit sale.

(4). Posting reference column is used to record the account numbers at the time of posting entries from sales journal to ledger accounts.

(5). Amount column is used to record the amount of merchandise sold.

Posting entries from sales journal to ledgers

The entries from sales journal are posted to accounts receivable subsidiary ledger and general ledger. The posting procedure is explained below:

  1. At the end of each month or at fixed intervals, the amount column of the sales journal is added and the total is posted as debit to accounts receivable and credit to sales account in the general ledger.
  2. The individual entries in the sales journal are posted to respective accounts in the accounts receivable subsidiary ledger.

Example 1

The sales journal, sometimes called the credit sales journal, is, used to record all sales made on account. The sales journal for the Fortune Store is shown in the below example. All the sales on account for the month of June are shown in this journal; cash sales are recorded in the cash receipts journal.

Sales invoices are the primary inputs into this journal. In this example, we will assume that all sales are made on terms of 2/10, n/30 and that the gross method is used to record sales discounts. This way, each account receivable is shown at its full amount. Because the sales journal is used exclusively to record credit sales, the last column, labeled Amount, represents both a debit to Accounts Receivable and a credit to Sales.

The below example also shows how postings are made from the sales journal to both the subsidiary and the general ledger accounts. Each individual sale is posted to its appropriate subsidiary account. After the posting is made, the account number or a check is placed in the post reference (Post Ref.) column.

The Post Ref. in the subsidiary ledger and controlling accounts will be labeled SJ-1 to represent page 1 of the sales journal. Postings to the subsidiary ledger should be made daily to ensure that management has up-to-date knowledge of how much each customer owes, This knowledge can be used to make sure that individual customers have not exceeded their credit limits.

At the end of the month, the amount column in the journal is totaled. This total is then posted as a debit in the Accounts Receivable control account and as a credit to the general ledger Sales account. In the illustration shown in the below example, this amount is $11,152.50. The numbers under this amount are the account numbers for accounts receivable (1110) and sales (4011). Finally, at the end of the month, the accounts receivable trial balance is prepared.

Sales Journal Posting Entries to general Ledger and Subsidiary Accounts

Example

The transactions relating to the sale of merchandise on account completed by Crescent company during the month of March 2016 are shown below:

Mar. 01: Sold merchandise on account to Z & Co. $1,120, invoice No. 110.
Mar. 08: Sold merchandise on account to John & Sons $3,140, invoice No. 111.
Mar. 20: Sold merchandise on account to John & Sons $6,400, invoice No. 112
Mar. 28: Sold merchandise on account to Sam Corporation $2,300, invoice No. 113

Required:

  1. Record the above transactions in the sales journal.
  2. Post the entries from sales journal to accounts receivable subsidiary ledger and general ledger.
  3. Prepare a schedule of accounts receivables.

Solution

(1). Sale journal:

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Accounts receivable subsidiary ledger:

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General ledger:

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Schedule of accounts receivable:

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Advantages

Using a sales journal significantly decreases the amount of work needed to record transactions in a manual system. Only one line is needed to record each transaction. It also is not necessary to write out an explanation of the transaction because only credit sales are recorded in the sales journal. Finally, the amount of time needed to post entries is reduced. Although each transaction must be posted to the subsidiary accounts receivable ledger, only the totals for the month have to be posted to the general ledger accounts. If a general journal were used to record credit sales, each transaction would have to be posted to both the subsidiary and the general ledger accounts. Even for a firm with only several hundred sales a month, using a sales journal can save considerable time.

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