Learning Outcomes
After reading this article, you will be able to explain how businesses use sales and sales returns day books to record credit sales invoices and credit notes. You will distinguish between credit and cash sales, describe the purpose of key documents, outline the process for entering information into prime entry books, and understand how these records affect customer accounts in the double-entry system.
ACCA Recording Financial Transactions (FA1) Syllabus
For ACCA Recording Financial Transactions (FA1), you are required to understand the role of day books in recording and controlling sales transactions. Revision should focus on:
- The function of the sales and sales returns day books as books of prime entry
- Recording sales invoices and credit notes for credit sales and sales returns
- Differentiating between cash and credit sales, and their respective recording procedures
- The use and referencing of key sales and credit note documents
- The process of posting totals from day books to ledger accounts
- The impact of credit notes on customer account balances
- The importance of correct coding and authorisation of prime entry records
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- Which transactions are recorded in the sales day book?
- What is the effect of issuing a credit note to a customer?
- True or false? Cash sales are recorded in the sales day book.
- Why should each sales invoice and credit note be uniquely referenced when entered in prime entry records?
Introduction
Sales and sales returns day books are essential for summarising all credit sales and subsequent sales returns before entry into the main accounting ledgers. They capture information from sales invoices and credit notes, ensuring only credit transactions are included. Cash sales are recorded separately.
A well-maintained prime entry system supports efficient updating of customer (receivables) accounts and allows clear audit trails. For the ACCA FA1 exam, you must understand what should be entered into each day book, how to structure the records, and how day book totals connect to the double-entry bookkeeping system.
Key Term: sales day book
A book of prime entry that records details of all sales invoices issued for credit sales.Key Term: sales invoice
A source document issued when goods or services are sold on credit, detailing what is owed by the customer.Key Term: sales returns day book
A prime entry book recording all credit notes issued to customers, usually for goods returned or overcharges.Key Term: credit note
A source document provided to a customer to reduce the amount owed, typically when goods are returned or when a sales error is corrected.
RECORDING CREDIT SALES INVOICES
When goods or services are sold on credit, a sales invoice is issued to the customer. Copies are retained for internal control and for recording in the sales day book. Each invoice entered must include the date, customer name, invoice reference, and net/gross amounts. Only credit sales belong here; cash sales should not be entered.
At defined intervals, the sales day book is totalled. This total is posted to the sales account (credit) and the trade receivables account (debit) in the general ledger. Individual customer accounts in the receivables ledger are also updated.
Worked Example 1.1
On 5 April, the business issues credit sales invoices to:
- Green Supplies: $600 (invoice 104)
- Prism Office: $1,100 (invoice 105)
- Raynov Ltd: $250 (invoice 106)
Show the recording in the sales day book and state the relevant posting to the general ledger.
Answer:
The sales day book for 5 April lists all three customers, with relevant invoice references and amounts. The total for posting to the ledger is $1,950. The double entry is: Debit Receivables $1,950 / Credit Sales $1,950.
Exam Warning
Do not enter cash sales in the sales day book. Cash sales are recorded in the cash book or cash register records, not in the prime entry book for credit sales.
RECORDING CREDIT NOTES FOR SALES RETURNS
Goods may be returned by customers, or an invoice may need correcting. In such cases, a credit note is issued, and the transaction is recorded in the sales returns day book (also called the returns inwards book).
Records should show the date, customer name, credit note number, and amount. At the end of the period, the total from the sales returns day book is posted to Sales Returns (debit) and Receivables (credit) accounts.
Worked Example 1.2
Two customers return goods in April:
- On 10 April, Prism Office returns goods worth $150 (credit note 22)
- On 14 April, Raynov Ltd returns goods worth $50 (credit note 23)
How are these recorded and posted?
Answer:
Entries appear in the sales returns day book under the appropriate dates and references. The total returned for April is $200. The double entry on posting: Debit Sales Returns $200 / Credit Receivables $200, reducing the amount customers owe.
DAY BOOKS AND THE DOUBLE-ENTRY SYSTEM
Sales and sales returns day books are not themselves ledger accounts; they summarise transaction data before posting. The end-of-period totals are posted to the general ledger as follows:
- Sales day book total: Debit Receivables; Credit Sales
- Sales returns day book total: Debit Sales Returns; Credit Receivables
Updating the individual sales ledger accounts (the subsidiary receivables) ensures that each customer’s balance reflects credit notes issued as well as new sales.
Worked Example 1.3
A business has $8,000 of credit sales (sales day book total) and $300 of sales returns (sales returns day book total) for February. How are these posted?
Answer:
- Debit Receivables $8,000; Credit Sales $8,000
- Debit Sales Returns $300; Credit Receivables $300
CODING, REFERENCING, AND AUTHORISATION
Each document recorded in the day books must have a unique reference number. This allows you to trace entries back to the original sales invoice or credit note. Before entry, check that:
- Customer and transaction details match supporting documents.
- Calculations and totals on invoices and credit notes are accurate.
- The documents are properly authorised and approved.
These steps maintain control, prevent fraudulent or erroneous postings, and ensure that records support future reconciliation and auditing.
Key Term: day book
A book of prime entry used to record similar transaction types before posting totals to the general ledger.
Summary
Sales and sales returns day books serve as organised books of prime entry for credit sales invoices and credit notes. Only credit transactions are included in these books. Totals from each are regularly posted to the relevant accounts in the general ledger and to customer accounts in the receivables ledger, ensuring complete and accurate financial records. Proper referencing, checks, and authorisation are essential for control.
Key Point Checklist
This article has covered the following key knowledge points:
- Explain the difference between recording credit and cash sales
- Identify what belongs in sales day book and sales returns day book
- Describe the purpose and contents of sales invoices and credit notes
- Outline the process for posting day book totals to ledger accounts
- State the double-entry impact of credit sales and credit notes
- Recognise the need for unique reference numbers and thorough checking
Key Terms and Concepts
- sales day book
- sales invoice
- sales returns day book
- credit note
- day book