Sales · Level: Basics
Journal entry: Sale of goods on credit
We deliver and send an invoice; the customer pays later. A trade receivable for the gross amount arises.
Worked example
We deliver goods to Green Retail Ltd for £7,300.00 plus 20% VAT and send an invoice.
Correct journal entry
Trade receivables £8,760.00 / Sales £7,300.00, Output VAT £1,460.00
Debit
Trade receivables£8,760.00
Credit
Sales£7,300.00
Output VAT£1,460.00
Why?
- Trade receivables: asset increases → debit
- Sales: income earned → credit
- Output VAT: liability increases → credit
Calculation
- VAT: 20% of £7,300.00 = £1,460.00
- Gross amount: £7,300.00 + £1,460.00 = £8,760.00
Typical mistake
Using Input VAT instead of Output VAT: on a sale we owe the VAT.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
Sales invoice to Green Retail Ltd: goods for £14,650.00 plus 20% VAT, payable within 30 days.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for sale of goods on credit?
Example: Trade receivables £8,760.00 / Sales £7,300.00, Output VAT £1,460.00.
How do I recognise this case?
We deliver and send an invoice; the customer pays later. A trade receivable for the gross amount arises.
What is the typical mistake?
Using Input VAT instead of Output VAT: on a sale we owe the VAT.