Accounting for Cash Sales

Sales revenue of a business comes from either cash sales or credit sales. Cash sales are sales made for cash. That’s mean the seller receives cash payment immediately upon providing goods or services to its customers.  

In this article, we cover the accounting for cash sales. This includes both sales with sales tax and sales without sales tax.

Accounting for Cash Sales without Sales Tax

The accounting for cash sales without sales tax is straightforward. Below is the journal entry to record the cash sales without sales tax:

Account Name	Debit	Credit
Cash	XXX
Sales revenue		XXX
(To record sales revenue by cash)

Example

ABC retail grocery store sold its groceries to customers for cash of $100.The journal entry of this cash sales is as follow:

DebitAccount Name	Debit	Credit
Cash	$100
Sales revenue		$100
(To record sales revenue by cash)

Accounting for Cash Sales with Sales Tax

Sales tax or simply value-added tax (VAT) is an indirect tax that the government requires the seller to collect on its behalf and pay that tax to the government. In some jurisdictions, the sales tax is called Goods and Service Tax (GST) and in some other jurisdictions, the sales tax is called commercial tax (CT).

Even though sales tax is collected with sales, it is not considered a sales revenue. The seller needs to record it as payable to be paid to the government.

The journal entry for cash sales with applicable sales tax is as follow:

Account Name	Debit	Credit
Cash	XXX
Sales revenue		XXX
Sales tax payable		XXX
(To record sales revenue with a sales tax by cash)

When the seller makes payment of sales tax to the relevant local tax authority, the journal entry is as follow:

Account Name	Debit	Credit
Sales tax payable	XXX
Cash		XXX
(To record sales tax payment to tax authority)

Example

On 15 January 20X1, XYZ Co sells office supplier to its customer for $1,000. The applicable sales tax is 10% on the total sales. The sales tax shall need to be made to the local tax authorize on the 15^th of the following month.

From the example above, the sales tax is $100 ($1,000 × 10%), therefore, the total invoice amount inclusive of sales tax is $1,100.

The journal entry for the cash sales on 15 January 20X1 is as follow:

Account Name	Debit	Credit
Cash	$1,100
Sales revenue		$1,000
Sales tax payable		$100
(To record sales revenue with sales tax by cash)

On 15^th February 20X1, XYZ has made the sales tax payment to the local tax authority. The journal entry for the payment of sales tax is as follow:

Account Name	Debit	Credit
Sales tax payable	$100
Cash		$100
(To record sales tax payment to tax authority)

In practice, before making sales tax payment to the tax authorize, a business can claim the purchase tax or simply input tax on VAT. Then, the company will need to pay to the tax authority on the net remaining after claiming the input tax.

Conclusion

The accounting for cash sales is straightforward and can with or without sales tax depends on the goods or services delivered or provided for.