Debit and Credit Ledger selection on Cash Sale of Trading Goods

Meaning of Cash Sale:

Cash Sale means,Goods/Materials are sold on immediate receipt of Cash/Bank(Cheque/Demand Draft/NEFT/RTGS/IMPS or any other payment mode linked to Bank etc.)from the Customer against the supply of goods.

When Goods are sold for Cash and GST is charged.

The Debit Ledger Account is: Cash A/c

and the Credit Ledger Accounts are: 

  1. Sales A/c

  2. GST A/c

Debit and Credit Ledgers on Cash Sale of Trading Goods

Journal Entry on Cash Sale of Trading Goods when Indirect Tax like GST,VAT is charged and eligible to claim ITC(Input Tax Credit).

Let's discuss,on a Journal Entry in the Books of M/s.RS Food Products.

Goods sold to Mr.Rabindra Kumar for Cash ₹61,270/- and charged GST@18% on dt.10/04/2020 as per Cash Memo/Tax Invoice No-131.

Journal Entry on Cash Sale of Trading Goods when GST is charged
Now let's come to know,

How the above Journal Entry comes to our mind ?

Steps and Procedures for Decision making for Debiting and Crediting of Ledger Accounts of the above transaction.

Step - 1

In first step,we have to identify the Ledger Accounts involved in the above transaction.

As a result,we found three Ledger Accounts.

1) Cash A/c

2) Sales A/c

3) GST A/c(IGST/CGST and SGST are used as per applicability of GST Act.)

Debit and Credit Ledger selection on Cash Sale of Trading Goods
Step - 2

In second step,we have to find out the type of Ledger Accounts involved by using either one of the Accounting Approach.

The above three Ledger Accounts mentioned in step-1 are related to type

Real Account(Cash A/c),Nominal Account(Sales A/c) and Personal Account(GST A/c) in Traditional Approach.

Asset Account(Cash A/c),Income/Revenue Account(Sales A/c) and Liability Account(GST A/c) in Modern Approach.

Type of Ledger Accounts involved on Cash Sale of Trading Goods
Step - 3

In third step,we have to look at the nature or flow of the Ledger Accounts involved by using either one of the Accounting Approach.

Cash A/c - Comes In,Sales A/c - Income,and GST A/c - Giver for the business in Traditional Approach.

Cash A/c(Asset Account) increases,Sales A/c(Income/Revenue Account) increases and GST A/c(Liability Account) increases in Modern Approach.

Flow of Ledger Accounts on Cash Sale of Trading Goods
Step - 4 

In fourth and final step,now it is time to place the Ledger Accounts in their respective column, i.e Debit Column or Credit Column by applying the Debit and Credit Rule using either one of the Accounting Approach.

Debit and Credit Rule
As a result,Cash A/c shows a Debit effect for ₹72,298.60

Sales A/c shows a Credit effect for ₹61,270.00 and

GST A/c shows a Credit effect for ₹11,028.60

Cash Sale of Trading Goods - Cash A/c(Dr.),Sales A/c(Cr.) and GST A/c(Cr.)
Location: Bhubaneswar, Odisha, India

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