2.3 Recording in Sales Day Books
Key Takeaways
- The Sales Day Book and Sales Returns Day Book are books of prime entry that compile credit invoices and credit notes chronologically.
- Day books contain columns for the transaction date, reference number, customer name, ledger folio, Net, VAT, and Gross.
- Individual customer ledger accounts in the Receivables Ledger are updated daily with the gross values of invoices (debit) and credit notes (credit).
- Period-end totals of the day books are posted to the General Ledger: SDB totals debit Trade Receivables, credit Sales, and credit VAT Control.
Books of Prime Entry
When processing high volumes of transactions, businesses do not write entries directly into the general ledger. Doing so would cause the general ledger to become cluttered and difficult to audit. Instead, businesses use books of prime entry (or day books) to record transactions chronologically.
For customer transactions, the two key books of prime entry are:
- Sales Day Book (SDB): Records all credit sales invoices issued to customers.
- Sales Returns Day Book (SRDB): Records all credit notes issued to customers for returned or damaged goods.
Cash sales are never recorded in these books; they are entered directly into the cash book.
Structure of the Sales Day Book and Sales Returns Day Book
The day books list transactions row by row and contain specific columns to separate the monetary elements of each invoice and credit note:
- Date: The invoice or credit note issue date.
- Invoice / Credit Note Number: The unique document identifier.
- Customer Name: The customer's trade name.
- Account Code: The reference code of the customer's account in the Receivables Ledger.
- Net (£): The sale value excluding VAT, after trade discounts.
- VAT (£): The tax charged.
- Gross (£): The total value owed by the customer (Net + VAT).
Some businesses use analysis columns in the Sales Day Book to divide the Net sales total into different revenue streams (e.g., 'Equipment Sales', 'Maintenance Contracts'). This provides management details without complicating the double-entry postings.
Worked Example: Day Book Entries
Consider the following transactions for a week:
- INV-201 (01 July) to Alpha Trading (ALP01): Net £400.00, VAT £80.00, Gross £480.00.
- INV-202 (03 July) to Beta Retail (BET02): Net £600.00, VAT £120.00, Gross £720.00.
- CR-12 (04 July) to Alpha Trading (ALP01) for returns: Net £50.00, VAT £10.00, Gross £60.00.
- INV-203 (05 July) to Gamma Corp (GAM03): Net £1,000.00, VAT £200.00, Gross £1,200.00.
- CR-13 (06 July) to Beta Retail (BET02) for pricing error: Net £100.00, VAT £20.00, Gross £120.00.
Sales Day Book (SDB)
| Date | Invoice No. | Customer | Account Ref | Net (£) | VAT (£) | Gross (£) |
|---|---|---|---|---|---|---|
| 01 July | INV-201 | Alpha Trading | ALP01 | 400.00 | 80.00 | 480.00 |
| 03 July | INV-202 | Beta Retail | BET02 | 600.00 | 120.00 | 720.00 |
| 05 July | INV-203 | Gamma Corp | GAM03 | 1,000.00 | 200.00 | 1,200.00 |
| Total | 2,000.00 | 400.00 | 2,400.00 |
Sales Returns Day Book (SRDB)
| Date | Credit Note No. | Customer | Account Ref | Net (£) | VAT (£) | Gross (£) |
|---|---|---|---|---|---|---|
| 04 July | CR-12 | Alpha Trading | ALP01 | 50.00 | 10.00 | 60.00 |
| 06 July | CR-13 | Beta Retail | BET02 | 100.00 | 20.00 | 120.00 |
| Total | 150.00 | 30.00 | 180.00 |
General Ledger Posting: Double-Entry Rules
At the end of the period, the totals of the SDB and SRDB columns are posted to the General Ledger.
Posting SDB Totals:
- Debit: Trade Receivables Control Account (Gross total: £2,400.00). This records the asset representing the total money owed by credit customers.
- Credit: Sales Account (Net total: £2,000.00). This records the total sales income.
- Credit: VAT Control Account (VAT total: £400.00). This records the liability to HMRC.
Double-entry rule:
- Debit Trade Receivables Control (£2,400.00) = Credit Sales (£2,000.00) + Credit VAT Control (£400.00)
Posting SRDB Totals:
- Debit: Sales Returns Account (Net total: £150.00). This is a contra-income account that reduces sales revenue.
- Debit: VAT Control Account (VAT total: £30.00). This reduces the liability to HMRC since the sales were reversed.
- Credit: Trade Receivables Control Account (Gross total: £180.00). This reduces the outstanding balance owed by customers.
Double-entry rule:
- Debit Sales Returns (£150.00) + Debit VAT Control (£30.00) = Credit Trade Receivables Control (£180.00)
Receivables Ledger Postings
The individual lines of the SDB and SRDB must also be posted. However, they are posted to the Receivables Ledger (or Sales Ledger), which is a subsidiary ledger.
The Receivables Ledger contains a separate account for each customer. It is a memorandum ledger only, meaning it does not form part of the formal double-entry system. Its purpose is to track how much each individual customer owes for credit control.
- From the SDB: Debit each customer's account with the individual Gross invoice amount (e.g., Debit Alpha Trading with £480.00 on 01 July).
- From the SRDB: Credit each customer's account with the individual Gross credit note amount (e.g., Credit Alpha Trading with £60.00 on 04 July).
The total of all individual balances in the Receivables Ledger must reconcile with the Trade Receivables Control Account balance in the General Ledger.
When posting the weekly totals from the Sales Day Book to the General Ledger, which accounts should be debited and credited?
Which ledger is updated with the individual gross amounts of sales invoices and credit notes, and is classified as a subsidiary ledger not forming part of the double-entry system?
What are the double-entry postings in the General Ledger for the weekly totals of the Sales Returns Day Book?