The accounts of credit customers.
Any business needs a proper accounting system to become successful in the long run, whether selling goods on credit or cash. You have to record credit transactions as the ownership of the goods passes immediately to your customer when you make sales. Then you will raise an invoice with all the details and the discount, if applicable, then send it to the buyer. That invoice gets paid in a month or depending on your credit agreement.
Sales day book
When raising invoices, copies are made, and one copy will be sent to the accounts department to create a sales day book. All the details like date, the name of the customer, details of goods and the discount allowed entered in the sales day book. Then the net amount gets posted to the customer ledger account. The monthly gross totals will be carried forward to the nominal ledger as accounts receivable. It is considered a short-term asset for your company, payable within a year. When you sell goods on credit, an entry is made to show the inventory reduction. The transaction appears in the cost of products sold and reduces the asset in the balance sheet. And it increases the expense in the income statement.
Please see the illustration here.
Sales day book
| Marh 17 | Khan | 230 |
| Harper | 400 | |
| Total | 630 |
Debtors Ledger
Khan & Co
| March 17 | Sales day book | 230 |
Harper & co
| March 17 | Sales day book | 400 |
Nominal ledger
| March 17 | Sales day book | Dr | Cr |
| 630 |
Accounting for bad debt
When you sell goods on credit, the buyers sometimes cannot make the payment. In that instance, you must reduce accounts receivable and increase the wrong debt account as an expense. Then estimate the amount of bad debt and accrue a fee at the end of the financial period. If the customer decides to pay later, reverse the ledger accounts.
The accounting method for early payment discounts.
When a discount is offered for early payment, the customers will take advantage of the discount and pay a reduced amount in the invoice. So the discount amount charged to a sales discount account appears in the income statement reducing profit.
| Dr | Cr | |
| Cash | 500 | |
| Sales discount | 130 | |
| Accounts receivable | 630 |
Accounts Receivable reconciliation
The accounting staff should reconcile the balance in the general ledger and the sales records. If there is a difference between the sales report and the public ledger, it is probably a mistake in the journal entries.