Slide 11.

Frank Wood’s
Business Accounting 1

Chapter 11
Accounting for sales,
purchases and returns

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.2

Learning objectives
After finishing this chapter, you will be able to:
 Distinguish between a cash sale and a credit
sale and between the way they are recorded in
the accounting books.
 Make the appropriate entries relating to credit
sales in a sales day book.
 Make the correct postings from the sales day
book to the sales ledger and general ledger.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.3

Learning objectives (Continued)

 Explain how trade discounts are treated in the
accounting books.
 Describe measures that may be taken to
exercise credit control over debtors.
 Make the appropriate entries relating to credit
purchases in a purchases day book.
 Make the correct postings from the purchases
day book to the purchases ledger and general
ledger.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.4

Learning objectives (Continued)

 Make the appropriate entries relating to returns
outwards in the returns outwards day book.
 Make the appropriate entries relating to returns
inwards in the returns inwards day book.
 Make the correct postings from the returns day
books to the purchases ledger, sales ledger and
general ledger.
 Explain the differences between a credit note
and a debit note.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.5

Cash sales
 When goods are paid for by cash, cheque
or immediate transfer, they are described
as ‘cash sales’.
 For accounting purposes, we do not need
to know the name and address of the
customer and there is no entry made in the
sales day book.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.6

Credit card payments

 When someone pays by credit card, we treat the
customer as though they are a cash customer
and do not note their name or address.
 However, a debtor does exist – the credit card
company – The double entry is a debit to the
credit card company’s account in the sales
ledger and a credit to the sales account.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.7

Credit sales
 The majority of businesses will make mostly
credit sales.
 For each credit sale, an invoice is issued,
giving full details of the sale, and this is used
to request payment from the customer.
 The business uses the invoice as a record of
the sale and enters the details in the sales
day book, including date, customer name,
invoice number and invoice amount.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.8

An example of an invoice

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.9

An example of the sales day book

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.10

Posting credit sales

From the sales day book:

 All credit sales are posted individually to

the debit side of each customer’s account
in the sales ledger.

 The total of the credit sales is posted to the

credit of the sales account in the general
ledger.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.11

Posting credit sales (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.12

Activity
Post the entries in the sales day book to
the customer accounts in the sales ledger
and the sales account in the general
ledger.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.13

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.14

Trade discounts
 Businesses often offer a trade discount to
certain customers.
 The trade discount is a percentage figure,
and will depend on the amount the
customer purchases.
 Trade discount is shown on an invoice but
never ever appears in the double-entry
bookkeeping.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.15

An invoice with trade discount

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.16

How the invoice will be recorded

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.17

Credit control
 Any business should check that debtors
are paying their accounts on time.
 If cash is not received from debtors
promptly, it can cause cash shortages for
the business.
 No business can survive cash shortages,
no matter how profitable they are.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.18

Credit control procedures

1. Set a credit limit for each debtor, dependent on
the debtor’s circumstances and stick to it.
 Moody’s Investor Services, Standard and Poor’s (S&P), and Fitch Group.
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2. When a payment is due, check if the money has

been received, and if it has not, consider refusal to
supply goods until payment is received. Thậm chí kể cả credit limit
has not been reached.

3. Consider taking legal action if a payment is not

forthcoming. -> sue the debtor for the debt
4. Make sure a customer is aware of what will
happen if amounts due are not paid.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.19

Purchase invoices
 Purchase invoices are sent to the buyers
of any goods that have been bought on
credit.
 Any sales invoice issued by a business is
a purchase invoice when received by the
buying business.
 The buyer enters the purchase invoice into
a purchase day book before recording the
details using double entry bookkeeping.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.20

Purchase day book

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.21

Posting credit purchases

From the purchases day book:

 The credit purchases are posted

individually to the credit of each supplier’s
account in the purchases ledger.

 The total of the credit purchases is posted

to the debit of the purchases account in
the general ledger.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.22

Activity
Post the purchases day book to the
supplier accounts in the purchases ledger
and the purchases account in the general
ledger.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.23

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.24

Returns inwards and credit notes

 When a seller agrees to take back goods
and refund all or part of the amount paid, a
credit note is sent to the customer.
 The customer’s account is credited with
the amount on the credit note to show the
reduction in the amount owed.
 To identify them from invoices, credit notes
are often printed in red.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.25

A credit note

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.26

Activity
Post the returns inwards day book to the
customer accounts in the sales ledger and
the returns inwards account in the general
ledger.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.27

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.28

Returns outwards
and debit notes
 When goods are returned, the supplier will
send a credit note to the customer, but if
the customer chooses, they can send a
debit note to the supplier.
 A debit note will contain the same details
as a credit note, but is always titled as a
debit note.
 Debit notes are entered in the returns
outwards day book.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.29

A debit note

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.30

Posting debit notes

From the returns outwards day book:

 The values of the debit notes are

individually posted to the accounts of the
suppliers in the ledger.

 The total of the returns outwards day book

is posted to the credit of the returns
outwards account.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.31

Activity
Post the returns outwards day book to the
supplier accounts in the purchase ledger
and the returns outwards account in the
general ledger.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.32

Activity (Continued)

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.33

Statements
 At the end of each month, a business will send a
statement to each debtor who owes money on
the last day of the month.
 A statement is a copy of the debtor’s account in
the supplier’s books.
 A statement should show the amount owing at
the start of the month, all sales invoices, all
credit notes, any payments from the debtor and
the amount due at the end of the month.
 Debtors should always check the statement
against their version of the account.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.34

A statement

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.35

Sales and purchases via credit cards

 Many businesses will offer a credit card
payment facility.
 When a purchase is paid for by credit
card, a voucher is produced which is given
to the customer and the business files a
copy.
 The credit card company pays the
business for the goods or service and then
collects the money from the customer.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11.36

Recording credit card sales

The double entry to record credit card sales is:

Sale of goods Debit Credit card company

Credit Sales

Receipt of money Debit Bank

Credit Credit card company
Commission charged Debit Selling expenses
Credit Credit card company

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018