Debit and Credit Ledger selection on Credit Sale of Trading Goods

Meaning of Credit Sale:

Credit Sale means,Goods/Materials are sold,but Cash/Bank(Cheque/Demand Draft/NEFT/RTGS/IMPS or any other payment mode linked to Bank Account etc.) is received on later date from the Debtor against that supply of goods.

When Goods are sold on Credit basis and GST is charged.

The Debit Ledger Account is:

  1. Sundry Debtors A/c(Some Accountants/people say Party A/c,Purchaser A/c,Buyer A/c,Receivable A/c).

and the Credit Ledger Accounts are: 

  1. Sales A/c

  2. GST A/c

Debit and Credit Ledgers on Credit Sale of Trading Goods

Journal Entry on Credit 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 M/s.Trupti Enterprises for ₹48,590/- and charged GST@18% on dt.15/04/2020 as per Tax Invoice No-185.

Journal Entry on Credit Sale of Trading Goods when GST is charged.
In the above Journal Entry the Debit Account is mentioned as 'Sundry Debtors A/c'.

But practically one have to write or maintain Ledger Account in the name of Sundry Debtor/Purchaser/Buyer.

For the above transaction 'M/s.Trupti Enterprises' is Sundry Debtor.

So,one should write the Journal Entry as mentioned below.

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) M/s.Trupti Enterprises  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 Ledgers on Credit Sale of Trading Goods when GST is charged
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

Personal Account(M/s.Trupti Enterprises A/c),Nominal Account(Sales A/c) and Personal Account(GST A/c) in Traditional Approach.

Asset Account(M/s.Trupti Enterprises A/c),Income/Revenue Account(Sales A/c) and Liability Account(GST A/c) in Modern Approach.

Type of Ledger Accounts involved on Credit 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.

M/s.Trupti Enterprises A/c - Receiver of Goods,Sales A/c - Income,and GST A/c - Giver for the business in Traditional Approach.

M/s.Trupti Enterprises 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 Credit 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,M/s.Trupti Enterprises A/c shows a Debit effect for ₹57,336.20

Sales A/c shows a Credit effect for ₹48,590.00 and

GST A/c shows a Credit effect for ₹8,746.20

Credit Sale of Trading Goods - Sundry Debtors A/c(Dr.),Sales A/c(Cr.),GST A/c(Cr.)

Location: Bhubaneswar, Odisha, India

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