A business can make a cash sale of inventory or services to a customer. The goods or services are supplied to the customer and payment is immediate using either cash or cheque. There is no credit given to the customer for the goods or services.
Suppose for example, the business makes a cash sale for the amount of 300, then the journal entries will be as follows.
Journal Entry for a Cash Sale of Inventory
The accounting records will show the following bookkeeping entries for the cash sale of inventory or services:
Cash Sale Bookkeeping Entries Explained
Cash is received from the customer for the cash sale.
A sale of inventory or services is made increasing sales revenue.
The Accounting Equation
The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the equity of the business. This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.
In this case one asset (cash) increases representing money received from the customer, this increase is balanced by the increase in owners equity. The credit to the income statement for the sale increases the net income which increases the retained earnings and therefore the owners equity in the business.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.