4: Accounting for Sales, Returns and Discounts

What does the term SALES mean?

The sale of goods in which the business trades.

What is revenue income?

The income from the goods in which the business trades.

What is capital income?

The income that is accounted for as the sale of an ASSET.

What are the 2 types of income?

1. Revenue Income

2. Capital Income

What are the 4 steps where the accounting records are prepared for CREDIT SALES, SALES RETURNS and DISCOUNTS ALLOWED transactions?

1. FINANCIAL DOCUMENT e.g. Sales invoice, Credit Note

2. BOOK OF PRIME ENTRY e.g. Sales Day Book, Sales Returns Day Book or Discounts Allowed Day Book

3. Information into GENERAL LEDGER

4. Information into SALES LEDGER

What are the day books used for credit sales, sales returns and discounts allowed?

• Sales Day Book

• Sales Returns Day Book

• Discounts Allowed Day Book

What are the three reasons for using books of prime entry?

• The totals can be checked before ledger accounts

• Using BsOPE for a large number of regular transactions results in fewer transactions in DEAs

• The account department’s work can be divided up.

When day books are written up from VAT invoices and credit notes, what positions does each part go into?

Total amount of invoice or credit note - TOTAL column

VAT amount - VAT column

Net amount of invoice or credit note - NET column

What does the sales day book do?

It lists the credit sales made by a business.

What 7 details have to be added to write up the sales day book?

• Date of Invoice

• Name of Customer

• Sales Invoice Number

• Cross Reference to customer’s account in SALES LEDGER

• Total - Total Column

• VAT - VAT Column

  • Net - Net Column

When accounting for sales transactions, what 2 ledgers are made use of?

• General Ledger

• Sales Ledger

What is the General Ledger?

Otherwise known as the main ledger or nominal ledger, it contains SALES accounts, SALES RETURNS accounts, SALES LEDGER CONTROL accounts, VAT and other accounts kept by the business

What is the Sales Ledger?

A subsidiary ledger to general ledger. It contains the accounts of the TRADE RECEIVABLES.