Do you know what a credit sale is and how to record it?
I’m Thomas Harwood and Welcome to The Accounting Student, where we create free and short videos
so that you can learn about accounting.
Today’s video is looking at how to record a credit sale.
First of all, a sale can be described as the goods or services sold to a customer.
There are two main types of sales, they are cash sales and credit sales.
In this video we are going to look at credit sales because this type is becoming more popular
with the developing global economy.
A credit sale is where goods or services were sold to a customer and the business and customer
agree for the payment to be paid at a future date.
When there is a credit sale of stock or inventory we enter the credit entry in the sales T account
and the corresponding debit entry will be in the customer’s T account, which can be
identified as a debtor of the business.
Let’s now look at how sales of stock on credit is treated in the accounts.
On the 17th July 2016 goods were sold for £110 on credit to B.Alright as well the future
payment date was agreed.
First we will look at the recording of the sale in the sales account.
For this transaction we would enter the details on the credit side of the T account. The transaction
took place on the 17th July 2016, which can be shown as 17/7/16. Then we will note it
as B.Alright in the detail column because that is the name of the other account that
has been affected during the transaction. And lastly 110 is entered in the £ column.
Now we will look at the recording of the sale in the customer’s account.
For this transaction we would enter the details on debit side of the T account. The transaction
took place on the same date, which can be shown as 17/7/16. Then we will note it as
sales in the detail column because that is the name of the other account affect during
the transaction. And lastly 110 is entered in the £ column.
Let’s assume that the future payment date agreed was on the 31st July 2016 and that
B.Alright made the payment on that date by cheque.
To record this we would first enter the details on the credit side of B.Alright’s T account
because B.Alright, i.e. a debtor, owes the business less money and this is a decrease
in an asset and therefore a credit entry.
The transaction took place on the 31st July 2016, which can be shown as 31/7/16. Then
we will note it as bank in the detail column because that is the name of the other account
that has been affected during the transaction. And lastly 110 is entered in the £ column.
Then to record the corresponding entry we will enter the details on the debit side of
the bank T account because B.Alright paid the business money and this is an increase
in an asset and therefore a debit entry.
The transaction took place on the 31st July 2016, which can be shown as 31/7/16. Then
we will note it as B.Alright in the detail column because that is the name of the other
account that has been affected during the transaction. And finally 110 is entered in
the £ column.
So that was demonstrating how to record a credit sale. If you enjoyed it, press the
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