-This question was submitted by a user and answered by a volunteer of our choice.
In the modern business world, sales are made on a credit as well as cash basis. Even though there’s a high risk of bad debts in selling goods on a credit basis, the companies prefer the same to develop customer loyalty and meet the cut-throat competition.
‘Sold goods on credit’ is nothing but the sale of goods on a credit basis i.e. providing goods to the customer with an expectation of receiving the payment in the future. This amount owed by the debtor leads to an increase in the accounts receivables of the company and is a current asset.
Journal entry for sold goods on credit
The respective debtor account is debited while the sales account is credited.
1. According to the golden rules of accounting:
| Debtor’s a/c | Debit | Debit the receiver |
| To Sales a/c | Credit | Credit all incomes and gains |
(being goods sold on credit)
2. According to the modern rules of accounting:
| Debtor’s a/c | Debit | Debit the increase in asset |
| To Sales a/c | Credit | Credit the increase in revenue |
(being goods sold on credit)
Example
XYZ Ltd. sold goods amounting to 50,000 to Mr A on credit. The journal entry in the books of XYZ Ltd. is as follows:
| Mr A’s a/c | Debit | 50,000 |
| To Sales a/c | Credit | 50,000 |
(being goods sold on credit)