Sales journal Questions and Answers

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Table of Contents Show

Definition and explanation
Sales invoice
Format of sales invoice
Format of sales journal
Explanation of columns
Posting entries from sales journal to subsidiary and general ledger
(1). Posting to accounts receivable subsidiary ledger:
(2). Posting to general ledger:
Sales journal with a “sales tax payable” column

Content:

Definition and explanation

The sales journal (also known as sales book and sales day book) is a special journal that is used to record all credit sales. Every transaction that is entered in sales journal essentially results in a debit to accounts receivable account and a credit to sales account. All cash sales are recorded in another special journal known as cash receipts journal.

Here, the term sales refers to the sale of only those goods or merchandise in which the business normally deals. The sale of used or outdated assets (such as old plant, machinery, equipment and newspapers etc.) are not recorded in sales journal. These transactions are entered in general journal (also known as journal proper).

Sales invoice

When seller (also termed as supplier) sells merchandise on credit, he prepares an invoice known as sales invoice or outward invoice. This invoice is sent to the customer, usually along with the merchandise. Seller also prepares a duplicate copy of sales invoice. This duplicate copy is kept by the seller with him because the entry in the sales journal is made on the basis of it.

Format of sales invoice

The specimen/format of a simple sales invoice or outward invoice with some basic information is given below:

If you have already read “purchases journal” article, you may have noticed that the sales invoice and purchase invoice are two different names of the same document. It is always prepared by the seller and is called sales invoice in the record of the seller and purchase invoice in the record of the buyer. The seller uses it to record a sales transaction in the sales journal and the buyer uses it to record a purchase transaction in the purchase journal.

Format of sales journal

The information recorded in the sales journal depends on the nature and needs of each individual business. However, a commonly used format of sales journal is given below:

Explanation of columns

A brief explanation of columns used in above format of sales journal is as follows:

Date: This column is used to record the date on which the sale is made. Normally, it is the same date as written on the invoice.
Account debited: This column is used to enter the name of customers whose individual accounts are maintained in accounts receivable subsidiary ledger.
Invoice number: The sales invoice number is written in this column.
Post reference (PR): The entries in sales journal are posted on daily basis to relevant accounts in accounts receivable subsidiary ledger. The post reference is used to enter account numbers of individual accounts in the accounts receivable subsidiary ledger in which the entries are posted.
Accounts receivable & Sales: In this column, the net amount receivable from customers is written. In the general ledger, the accounts receivable account is debited and sales account is credited by the total of this column.
Cost of goods sold & inventory: In this column, the cost price of the merchandise sold is entered. In general ledger, the cost of goods sold account is debited and inventory account is credited by the total of this column.

Posting entries from sales journal to subsidiary and general ledger

The entries in sales journal must be posted from sales journal to individual accounts in accounts receivable subsidiary ledger and general ledger. The posting procedure is briefly explained below:

(1). Posting to accounts receivable subsidiary ledger:

At the end of each day (or immediately after the transaction has been performed), the individual entries are debited to appropriate accounts in accounts receivable subsidiary ledger.

(2). Posting to general ledger:

At the end of each month or another appropriate period, the column totals of sales journal are posted to relevant general ledger accounts as follows:

The total of accounts receivable & sales column is debited to accounts receivable account and credited to sales account in the general ledger.
The total of cost of goods sold & inventory column is debited to cost of goods sold account and credited to inventory account in the general ledger.

To indicate that the posting has been made to general ledger accounts, the account numbers of general ledger accounts are written in parentheses below the totals of the relevant columns of sales journal. Consider the following example for a better explanation of the whole procedure.

Example

The following example illustrates how transactions are recorded in sales journal and how entries from sales journal are posted to individual accounts in accounts receivable subsidiary ledger and general ledger.

Sales journal with a “sales tax payable” column

The sellers are usually instructed by governmental agencies to collect sales tax from customers on the sale of certain goods and services and send these taxes to the appropriate governmental agency. If a business is collecting sales tax, it is convenient to add a sales tax payable column to its sales journal to record the amount of sales tax collected from customers on each sale. An example of sales journal with a sales tax payable column is given below:

The sales journal given above shows that the seller is collecting a sales tax @ 2% on all goods sold to customers. The posting of this sales journal will be similar to the posting explained in the above example. A sales tax payable account would be opened in the general ledger and the total of sales taxes payable column of sales journal would be credited to that account at the end of each month or another appropriate period.

More from Special journals/subdivision of journal (explanations):

Journal entry is first step in accounting cycle. In order to understand accounting, you need to practice journal entry problems and solutions. Following are important journal entry problems and solutions.

Problem 1:

On April 01, 2016 Anees started business with Rs. 100,000 and other transactions for the month are:

2. Purchase Furniture for Cash Rs. 7,000.

8. Purchase Goods for Cash Rs. 2,000 and for Credit Rs. 1,000 from Khalid Retail Store.

14. Sold Goods to Khan Brothers Rs. 12,000 and Cash Sales Rs. 5,000.

18. Owner withdrew of worth Rs. 2,000 for personal use.

22. Paid Khalid Retail Store Rs. 500.

26. Received Rs. 10,000 from Khan Brothers.

30. Paid Salaries Expense Rs. 2,000

Click Here To Download Journal Entry Problems

Solution:

Journal Entry Format Download

>> Read explanation and examples of Journal Entry…

Prepare general journal entries for the following transactions of a business called Pose for Pics in 2016:

Aug. 1: Hashim Khan, the owner, invested Rs. 57,500 cash and Rs. 32,500 of photography equipment in the business.

04: Paid Rs. 3,000 cash for an insurance policy covering the next 24 months.

07: Services are performed and clients are billed for Rs. 10,000.

13: Purchased office supplies for Rs. 1,400. Cash paid Rs. 400 and remaining outstanding.

20: Received Rs. 2,000 cash in photography fees earned previously.

24: The client immediately pays Rs. 15,000 for services to be performed at a later date.

29: In addition, the business acquires photography equipment. The purchase price is Rs. 100,000, pays Rs. 25,000 cash and signs a note for the balance.

Click Here To Download Journal Entry Problems

Solution:

>> Understanding Chart of Accounts is required…

On March 2017, Farhan Rahim, starts wholesaling business. Following transactions as follows:

1. He started business with capital of Rs. 15,000 and Land worth Rs. 10,000.

8. Bought goods from Bilal and Friends Rs. 1,000 and by cash from XYZ Co. Rs 2,000.

13. However, sold goods to Rehman & sons Rs. 1,500 and sale by cash Rs. 5,000.

17. Gave away charity of cash Rs. 50 and merchandising worth Rs. 30.

21. Paid Bilal and Friends cash Rs. 975; discount received Rs. 25.

28. Received cash from Rehman & Sons Rs. 1,450; allowed him discount of Rs. 50.

Journal Entry Format Download

Solution:

>> More reading Normal Balance…

Shah Sauood Marine is a boat repair yard. During August 2016, its transactions included the following:

03. Loan taken from Habib Bank Ltd. of Rs. 25,000. Rs. 20,000 withdrawn for business and remaining in the bank a/c.

06. Paid rent for the month of August Rs. 4,400 and accrued rent expenses was Rs. 600.

12. At request of Kiwi Insurance, Inc, made repairs on boat of Jon Seaways. Sent bill for Rs. 5,620 for services rendered to Kiwi Insurance Inc. (credit Repair Service Revenue).

18. Made repairs to boat of Dennis Copper and collected in full the charge of Rs. 2,830.

20. After that, placed Advertisement in The Dawn of Rs. 165, payment to be made within 30 days.

25. Received a check for 5,620 from Kiwi Insurance Inc representing collection of the receivable of August 12.

30. Sent check to The Dawn in payment of the liability incurred on August 20.