In which journal should the following be recorded a customer purchases an item on credit?

Definition of a Special Journal

A special journal [also known as a specialized journal] is useful in a manual accounting or bookkeeping system to reduce the tedious task of recording both the debit and credit general ledger account names and amounts in a general journal.

Example of a Special Journal

One example of a special journal is the sales journal which is used exclusively for a company’s sales of merchandise to customers that are allowed to pay at a future date. The sales journal will have only one column in which to enter the amount of each sales invoice. At the end of the month the total of the column is debited to Accounts Receivable and credited to Sales. Throughout the month, the individual sales invoices will be posted to each customer’s record found in the company’s subsidiary ledger for Accounts Receivable.

The benefits of using a special journal instead of the general journal for the repetitive transactions have been eliminated with today’s inexpensive yet powerful accounting software. For example, when a sales invoice is prepared by using accounting software, both the general ledger and subsidiary accounts will be updated instantly and accurately.

More Examples of Special Journals

In addition to the sales journal [used for recording sales on credit], there are other special journals which were popular in manual accounting systems. The following special journals were more efficient than recording all transactions in the general journal:

Cash disbursement journal for recording checks written.
Cash receipts journal for recording cash sales and other money received.
Purchases journal for recording purchases on credit of goods to be resold. [Cash purchases are recorded in the cash disbursement journal. Purchases of items such as equipment are recorded in the general journal.]

Customer purchases to be paid at a later date

What are Credit Sales?

Credit sales refer to a sale in which the amount owed will be paid at a later date. In other words, credit sales are purchases made by customers who do not render payment in full, in cash, at the time of purchase. To learn more, check out CFI’s Credit Analyst Certification program.

Types of Sales Transactions

There are three main types of sales transactions: cash sales, credit sales, and advance payment sales. The difference between these sales transactions simply lies in the timing of when cash is received.

1. Cash sales: Cash is collected when the sale is made and the goods or services are delivered to the customer.

2. Credit sales: Customers are given a period of time after the sale is made to pay the seller.

3. Advance payment sales: Customers pay the seller in advance before the sale is made.

Credit Terms and Credit Sales

It is common for credit sales to include credit terms. Credit terms are terms that indicate when payment is due for sales that are made on credit, possible discounts, and any applicable interest or late payment fees.

For example, the credit terms for credit sales may be 2/10, net 30. This means that the amount is due in 30 days [net 30]. However, if the customer pays within 10 days, a 2% discount will be applied.

Assume Company A sold $10,000 worth of goods to Michael. Company A offers credit terms 5/10, net 30. If Michael pays the amount owed [$10,000] within 10 days, he would be able to enjoy a 5% discount. Therefore, the amount that Michael would need to pay for his purchases if he paid within 10 days would be $9,500.

How to Record a Credit Sale

On January 1, 2018, Company A sold computers and laptops to John on credit. The amount owed is $10,000, due on January 31, 2018. On January 30, 2018, John made the full payment of $10,000 for the computers and laptops.

The journal entries would be as follows:

Date	Account Title	Debit	Credit
January 1, 2018	Accounts Receivable	$10,000
	Sales		$10,000
To record the sale of goods to John on credit

Date	Account Title	Debit	Credit
January 30, 2018	Cash	$10,000
	Accounts Receivable		$10,000
To record the full payment made by John for purchases on January 1, 2018

How to Record a Credit Sale with Credit Terms

Consider the same example above – Company A selling goods to John on credit for $10,000, due on January 31, 2018. However, let us consider the effect of the credit terms 2/10 net 30 on this purchase.

The journal entries would be as follows:

Date	Account Title	Debit	Credit
January 1, 2018	Accounts Receivable	$10,000
	Sales		$10,000
To record the sale of goods to John on credit

John decides to take advantage of the credit terms and thus pays on January 5, 2018:

Date	Account Title	Debit	Credit
January 5, 2018	Cash	$9,800
	Cash Discount	$200
	Accounts Receivable		$10,000
To record the sale of goods to John on credit with the credit discount

John paid his invoice four days [January 5] after purchasing the goods on credit. Therefore, he would be able to enjoy a 2% discount on his credit purchase [$10,000 x 2% = $200].

Advantages and Disadvantages of Credit Sales

As previously mentioned, credit sales are sales where the customer is given an extended period to pay. There are several advantages and disadvantages for a company offering credit sales to customers.

Advantages

Credit sales can be used to more easily acquire new customers. Offering credit can attract new customers to purchase from the company.
Customers are sometimes without enough cash on hand. Offering credit gives customers the flexibility to go ahead and buy now and pay for purchases at a later date.

Disadvantages

Customers can potentially go bankrupt. If customers go bankrupt, the amount owed may be unrecoverable and must be written off.
Costs of collection may decrease profits. If a customer misses the payment or refuses to pay, the company may incur collection costs in trying to obtain the payment.

What is the journal entry for purchase on credit?

What is the Purchase Credit Journal Entry? Purchase Credit Journal Entry is the journal entry passed by the company in the purchase journal of the date when the company purchases any inventory from the third party on the terms of credit. The purchases account will be debited.

Which journal is used to record credit purchases?

Purchase Journal The purchases journal is used to record all purchases on credit. This means purchases we have not paid for but will pay for in the future.

Where are purchases on credit recorded?

All credit purchases are recorded in the Purchase book. Only credit purchases are recorded in the purchase book and not cash purchases. Goods are things that are produced for resale in a business. Any purchase of assets is not recorded in the Purchases book.

In which accounting book do you record purchases made on credit?

Accounts Receivable. Accounts payable and accounts receivable are accounting concepts used in accrual accounting to record transactions when cash is not exchanged. Accounts payable are recorded by a company when it purchases goods and services on credit and will make payment in a future period.