The GOODS sold on credit are first recorded in the Sales Journal/ daybook. Note that only goods sold on credit are recorded in the Sales Journal, whereas cash sales are recorded in the cash book, and items other than goods (e.g. fixed assets if disposed and scrap, etc.) are recorded in general journals.
Like the other daybooks and journals, in a sales journal, brief information in a preset format is recorded. This information is recorded after reconciling documents like Goods Dispatch Note, Invoices sent to customers, and Goods Received Notes from the customers. Invoices and Goods Dispatch Notes are internal documents. These documents shall be pre-numbered. For effective internal controls, sales day books shall be updated according to the same order as the sequence of these documents.
The sale journal/ day books are totaled periodically (daily or weekly according to the convenience of business) and information is then posted to the sales/ receivable ledger in the following manner.
(A) Debit customers’ personal accounts with their selling price.
(B) Credit Sales Account.
Cash Sales
We know that only credit sales are recorded in the cash daybook/ Journal. The sales against which immediate cash is paid or even customers pay a cheque or charge their credit card are not recorded in sales daybooks. All such sales are recorded in the relevant columns of the cash books.
The primary reason to record only credit sales in the day books is that only credit sales are required to be transferred in the receivable ledgers, therefore required details of these are recorded in the Sale journal. On the other hand, in order to keep cash balances, updated cash sales must be entered in the cash book.
As no detailed information about customers for cash sales is required for basic bookkeeping purposes, only credit sales are recorded in the sales journals/ day books. However, with the advancement in computing and data capturing technologies, many modern business practices allow every possible information about customers to be captured for further sales analysis. However, it is again reiterated that for basic bookkeeping, only credit sales shall be recorded in the sales day books/ Journals.
Credit Sales
In credit sales, documents (Invoices and Goods Dispatch Notes) are sent to the customers containing all the required details of the transaction. These documents are designed according to the needs of a particular business and current practices of the industry. For effective business controls, these documents shall be pre-numbered and shall always be cross-referenced to other documents especially any document received by the customer containing the details of the order placed (e.g. Purchase order).
There is no need to record complete details of the goods sold in the sales day book. This can be found by looking at the copy invoices.
Columnar Sales Journal/ Daybooks
For the business selling a single product, the sales book may have a single column amount as illustrated in the image above. However, if a business sells multiple products, managers will want to see the sales performance of each type of different product separately. Further, if different products are sold to the same customer, both the total credit sale to that customer along with sales of each product is required to be recorded. This will maintain the sales record for each customer (verifiable with the total value of the invoice) and the sales performance of each product (how much a particular product sold during the period).
Therefore, multi-columnar sales day books/ Journals are used for a separate column for each type of product. A business can have as many columns as it needs.
Internal Controls on Sales
Sales Invoices, especially invoices against credit sales are very important as these are the primary source on which Accounts Receivables are recorded and in future monies are demanded from the debtors/ receivables.
There are several checks which need to be embedded in the invoicing process of the organisations.
While preparing invoices, it shall be ensured that the information contained in the invoices is complete. For example, Rates are accurate, and all products sold have been included in the invoice. Further, calculations shall be accurate and invoices shall be properly summed up. One way to ensure accuracy is that all invoices shall be reviewed and approved by a person other than the one who is preparing them.
This process of approval also ensures that invoicing process is delegated. Besides the preparation of invoices, other processes in Credit sales to receipt realization cycle shall also be delegated.
For example, the person who is approving invoices shall not be involved in receiving and recording the amounts against those invoices
Similarly, the person who is responsible for accepting and recording sales returns shall be different from the person who is responsible for invoicing.
Although delegation of processes may not be adequately adopted in smaller setups, the however delegation shall be adhered to at every possible level so the chances of any error and omission can be reduced so that the users of accounting information shall have confidence over it.
