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
- 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.
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.
For example, 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
A sales journal entry is the same as a revenue journal entry.