Question about general ledger (a level accounting)?

Question

" The total at the end of the month's sales day book is used and these have been posted from the day book into the nominal ledger accounts"

I understand why it is double entry and what the debit and credit side is for.

However, in the general ledger sales account why is the monthly total inputted in the credit side? I would have thought sales is a debit seeing as it's income.

Thanks.

Answer 1

Start by looking at it from the point of the Balance Sheet not the Income Statement.

Assets = increases in value hence when you add to your bank balance you MUST Debit the account, When you add to a receivable Ledger (if you offer credit terms) it's an increase to the A/R account.  The other side of the ledger is really just a balancing equation.  So when Double enter accounting was created they started with Assets and Liabilities accounts.  The P/L (Profit Loss) accounts are really just used to balance the equation.

I'll show the examples based on Cash sales and Cash Expenses (ie Not A/R or A/P)

You sale your product 150.00 = increase in Bank Balance

Debit Cash in Bank  150.00

Credit Sales  150.00 (It needs to balance the Equation)

You pay your Rent (500.00) = outflow of Cash

Credit Cash in Bank 500.00

Debit Rent Expense 500.00  (again just in order to balance the equation)

Answer 2

When you post the Sales Day Book you make the following entrys:

Dr Sales Ledger Control Account

Cr VAT

Cr Sales

Hope this helps