JournaldrillSale on account
A sale on account (credit sale) is recorded by debiting Accounts Receivable and crediting Sales Revenue or Service Revenue at the invoice amount, because revenue is earned when the goods or service are delivered, not when cash arrives. For merchandise under a perpetual system also debit Cost of Goods Sold and credit Inventory.
Syntax
Dr Accounts Receivable / Cr Sales Revenue; (merchandise, perpetual) Dr Cost of Goods Sold / Cr Inventory| Part | What it is |
|---|---|
Accounts Receivable | Asset debited for the amount the customer now owes. |
Sales Revenue / Service Revenue | Revenue credited at the invoice price before any discount is taken. |
Cost of Goods Sold | Expense debited at cost when merchandise is sold under a perpetual system. |
Inventory | Asset credited at cost for the goods shipped. |
Examples
Dr Accounts Receivable 4,000 / Cr Service Revenue 4,000Result: Assets up 4,000, revenue (equity) up 4,000
Services billed to a client, payment due in 30 days.
Dr Accounts Receivable 2,500 / Cr Sales Revenue 2,500; Dr Cost of Goods Sold 1,600 / Cr Inventory 1,600Result: Assets up 900 net, gross profit 900
Merchandise costing 1,600 sold on account for 2,500.
Later: Dr Cash 4,000 / Cr Accounts Receivable 4,000Result: Assets unchanged in total (cash up, receivable down)
Collection of the invoice is not revenue; the revenue was already recorded.
Common mistakes
- Waiting until the cash arrives to record revenue: under accrual accounting revenue is recorded when earned, so the sale goes in on the invoice date.
- Recording revenue again when the customer pays: the collection entry is Dr Cash / Cr Accounts Receivable, with no revenue.
- Recording the sale net of an offered cash discount: book the full invoice amount and record the discount only if the customer actually takes it.
Practice Sale on account
These drills check your answer on live data, free, no account needed.
- Services billed on accountClearview Window Washing cleans the windows of a downtown office building and sends the owner an invoice for $1,320, payable in 30 days.
- Sale on account with costMesa Electronics sells a home theater system to a customer on account for $3,200. The system cost Mesa $1,900. Mesa uses a perpetual inventory system. Record both the sale and the cost in one entry.
Questions
What is the journal entry for sales on credit?
Debit Accounts Receivable and credit Sales Revenue for the invoice amount. For merchandise, also debit Cost of Goods Sold and credit Inventory at cost.
Is accounts receivable a debit or credit?
Accounts Receivable is an asset with a debit normal balance. It is debited when you bill a customer and credited when the customer pays.
Related
- Collecting a receivableHow to record a customer paying an invoice: debit Cash, credit Accounts Receivable. Partial payments, early-payment discounts and why there is no revenue.
- Cash saleHow to record a cash sale: debit Cash, credit Sales or Service Revenue. For merchandise under a perpetual system add Dr Cost of Goods Sold, Cr Inventory.
- Sales returns and allowancesHow to record a customer return: Dr Sales Returns and Allowances, Cr Accounts Receivable or Cash, and Dr Inventory, Cr Cost of Goods Sold when restocked.
- Bad debt expenseHow to estimate and record bad debt expense: Dr Bad Debt Expense, Cr Allowance for Doubtful Accounts. Percent of credit sales versus aging of receivables.