What is the Sales Journal Entry?
A sales journal entry records the revenue generated by the sale of goods or services. This journal entry needs to record three events, which are the recordation of a sale, the recordation of a reduction in the inventory that has been sold to the customer, and the recordation of a sales tax liability. The content of the entry differs, depending on whether the customer paid with cash or was extended credit. In the case of a cash sale, the entry is:
[debit] Cash. Cash is increased, since the customer pays in cash at the point of sale.
[debit] Cost of goods sold. An expense is incurred for the cost of goods sold, since goods or services have been transferred to the customer.
[credit] Revenue. The revenue account is increased to record the sale.
[credit]. Inventory. The inventory asset account is reduced to reflect the reduction of inventory caused by the sale, when goods are transferred to the customer.
[credit] Sales tax liability. If a sales tax liability is created by the sale transaction, it is recorded at this time, and will later be eliminated when the sales tax is remitted to the government.
The layout of the journal entry for a cash sale is as follows:
If a customer was instead extended credit (to be paid later), the entry changes to the following:
[debit] Accounts receivable. A receivable is created that will later be collected from the customer. This replaces the increase in cash noted in the preceding journal entry.
[debit] Cost of goods sold. Same explanation as noted above.
[credit] Revenue. Same explanation as noted above.
[credit] Inventory. Same explanation as noted above.
[credit] Sales tax liability. Same explanation as noted above.
The layout of the journal entry for a sale on credit is as follows:
Example of the Sales Journal Entry
As an example of a sales journal entry, a company completes a sale on credit for $1,000, with an associated 5% sales tax. The goods sold have a cost of $650. The sales journal entry is:
[debit] Accounts receivable for $1,050
[debit] Cost of goods sold for $650
[credit] Revenue for $1,000
[credit] Inventory for $650
[credit] Sales tax liability for $50
Terms Similar to Sales Journal Entry
A sales journal entry is the same as a revenue journal entry.
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