Definition
A Sales Journal, also known as the Sales Day Book, is a specialized accounting journal used to record all credit sales of merchandise. It simplifies the bookkeeping process by providing a space where all sales transactions can be recorded chronologically rather than entering them directly into the general ledger or the customers’ subsidiary ledger accounts.
Explanation
While all companies maintain a single journal for bookkeeping records, some companies like to divide journals into multiple types which makes it easy to track down financial records. Some companies would have multiple sale journals for different types of products. These companies would keep multiple sales journals to track the sales of each product. The sales, their dates, and prices are all listed in chronological order. Sometimes, a specific identification number would also be added to track the product. This specific identification also helps track the inventory.
Example
Consider a company that sells car accessories such as LED light bars and cleaning kits. The company keeps a Sales journal to keep track of its sales. The company does not provide any credit to buyers for purchase. The company sells an LED light for one hundred dollars. How would this sale be noted in the Sales Journal?
There are two sides to every accounting book; it is the same for a sales journal. One is the credit side and the other is the debit side. The sale of the LED light would bring 100 Dollars to the company. This cash would be noted on the credit side, whereas the LED light would be noted on the Debit side.
The company also has a tracking identification number for the LED light. This helps the company track the inventory. As inventory gets low, the company would order new LED lights from the suppliers.
Sales Journal Entry Format
There are six main parts of the entry format of a sales journal. All six of these are shown in figure 1 below:
Figure 1: Basic format of a sales journal
The six main parts of a sales journal are Data, account Debited, Invoice number, post Reference, Accounts Receivables, and cost of goods sold.
A detailed explanation of all the entry formats for a sales journal is given in detail below:
Date
This is the very first column of a sales journal. Here, the dates of the sales are mentioned. Some journals even include a time column. Now, there is software that automatically enters the day, time, and even the name of the goods sold. This software also allows the inventory to be automatically updated when a specific good is running low on inventory, by automatically ordering that particular good from the supplier.
By mentioning the date, we can easily track when that particular good was sold. This allows the company to track the dates on which the goods were sold.
Account Debited
This is the second column in the sales journal as we can see from Figure 1. This column records the name of the buyer. When big clients purchase things from the suppliers such as Walmart when it purchases goods from one of its suppliers, the supplier has a credit account opened in its sales journals for that client. The account of that client is debited, meaning the supplier’s account is credited when that supplier purchases the goods.
Invoice
The sales invoice number is mentioned in the third column as shown in figure 1. A copy of the sale invoice is also generated and handed down to the customer. The identification number mentioned in the invoice allows for helping track down that particular sale.
The invoice number is generated to help the clients. So, if a client wants to return the product the invoice number can be matched with the invoice number in the sales journal.
This is done to avoid the chances of fraud to avoid any unnecessary losses. This is all now done by software, where a person types the invoice number into the account and the software tracks down the sale.
Post reference entries
This is done by the suppliers to track their customers. Each client is given a certain number and the same number, post reference is different from the account debited, as this does not contain the amount of money for a particular order from the client.
A certain number represents the particular sale, and the same number is used to track the client. A certain number keeps changing, but the same number remains the same.
If ever some issue arises in the sale or delivery of the product to the client, the post reference entries help track the specific order and client.
Account receivables or sale
This is the second last entry in the sales journal. Account receivables are mentioned when the client purchases a product or service on credit, and sales are mentioned when the client purchases a product or service and pays for it through cash.
These two are basically the same columns but the name just changes depending on whether the client made a purchase on credit or by paying cash. If the payment is made in cash, the column becomes the sales column, but when it is paid on credit, the column becomes account receivables.
Cost of Goods Sold
This is the final column in the sales journal. It is also one of the most important columns. The cost of goods sold has a dual benefit. It does not only contain the price of the cost of goods sold, it also updates inventory.
Each product has a specific identification number. So, when a particular product’s amount goes down, the warehouse is notified of it, and they put more purchase orders for that particular.
In new accounting software, both functions of this column are happening simultaneously. The warehouses are updated constantly, so there is no delay and the company does not run out of product when clients are asking for it.
Frequently asked questions
What is a sales journal entry?
A sales journal entry is a sale entry made in the sales journal when a customer purchases a product. It does not only record the cost of purchase, the sales journal entry also notes the date, time, sales tax, and so much more in the sales journal.
Is sales debit or credit?
Sales are a credit side entry for the seller. This is because of the fact that sales are basically an income-generating operation, so sales are entered in the credit side of the sales journal. Sales returned are entered on the debit side.
Sales returned are also known as the return of goods. In this case, the money paid by the customers has to be returned, and as a result, these go on the debit side. So, whether sales are credit or debit depends upon whether sales are made or products are returned.
What is the difference between a purchases journal and a sales journal?
The sales journal records credit transactions. The purchase journals record debit transactions. Both journals are special types of journals. It is also clear from the name that sales journal records sale transactions, whereas purchase journals record purchase transactions.
Some businesses keep a different purchase and sale journal, while some journals keep the record of purchases and sales in the same journal.
How many types of sales journals are there?
There are four main types of sales journals. The name of the four sales journals is sales journals, cash receipt journals, purchase journals, and Cash Payments journals. Each type of sales journal has specific requirements. For example, cash receipt journals are used by merchant businesses to record cash receipt transactions.
Similarly, purchase journals are used to record the purchases of a company. Cash payment journals record the cash payments made by the clients of a company. Sales journals record sales and some other particular metrics related to sales.