Accounting for cash customers - basic enquiry

soroem1 Registered Posts: 12

Have a very basic set of questions that I've been struggling to wrap my head around recently and wondered if someone could help. If I explain a scenario, perhaps you will get what I mean:
  1. I have a business that offers services usually on an accrual basis,
  2. I have a customer visit my workplace and they buy one item of whatever I am selling with £100 cash,
  3. In my accounts - Sage, for example, I record this as follows (is this correct):

    *Please assume no outstanding balances and that this is the only customer that has paid cash in this period.

    (a) Credit the customer account (as it is cash income) with £100,
    (b) Debit the bank (money going in),
    (c) Credit the VAT control with £20 (liability arising),
    (d) Credit the relevant Sales account with £80 (code 4000 on Sage, for example) - (income for that sales item occurred)

    Now, if I have this correct, this means that the Customer account, aka, Sales ledger will show a credit balance due to that customer paying direct with cash.

    The money goes straight to the bank, so the SLCA is untouched (and there are no credit terms). We record the necessary income on the P&L sales code and the VAT liability on the balance sheet in VAT Control (HMRC are not yet expecting payment for this quarter).

    However, I have read that the SLCA must balance with the sales ledger (customer accounts). In this case I cant see that it does.

    Im sure Im missing something completely obvious... can anyone help me understand this?

    Are customer accounts only created for credit customers? Should I not be recording cash sales by known customers in the sales ledger? I wouldn't want it to be an anonymous entry in the cashbook- I'd want to know that it was a certain customer that bought an item with cash, only I cant see how it balances in the accounts.

    Definitely tied myself in a knot here.

    Thanks for your time.


  • CeeJaySix
    CeeJaySix Registered Posts: 645
    You could simply dr bank, cr sales; however if you want to keep a record by customer, you will need to use the sales ledger.

    It is important to remember your sales ledger accounts DO NOT form part of the double entry. The SLCA does.

    You will note that your journals don't balance above; you have £200 credits but only £100 debits. The sale needs to be debited to the customer a/c when it is credited to sales/VAT. Essentially you are taking the SLCA out of the equation, which isn't technically correct but in this case makes no odds as the dr and cr to the customer a/c happen at the same time.

    Correct entries (ignoring VAT):
    Dr SLCA, Cr sales. Also make a dr entry in your sales ledger customer a/c for the sale.
    Dr bank, Cr SLCA. Also make a cr entry in your sales ledger customer a/c for the receipt.

  • soroem1
    soroem1 Registered Posts: 12
    Thanks Cee-Jay,

    So if you conduct business primarily on the basis of accruals - i.e. you are not totally a cash based company - and a cash payment comes in without needing to issue an invoice, do you still post the transaction to the SLCA and go through the procedure of debiting the customer account, then instantly crediting it, then debiting bank and crediting the SLCA etc?

    In this case, if a customer pays cash do we just treat them, in accounting terms, as the same as a credit customer, but the transactions are carried out all in one go?

    I was under the impression the SLCA was as a control for credit customers only?

    Thanks for your help.

  • CeeJaySix
    CeeJaySix Registered Posts: 645

    I take it this is a theoretical question? In the real world your software would make most of the entries for you, you would simply raise an invoice on the customer account and then post a cash receipt.

    You would raise an invoice regardless of whether it's cash or credit in most business environments - obvious exception being retail, but there the stores don't keep individual customer accounts for cash sales.

    In a purely AAT theory point of view, if you want a record of the sale on your customer account, the above journals are correct. I don't remember seeing this sort of scenario though; I would post cash sales as dr bank cr sales/VAT, but then you don't have a record on the individual customer. If you were keeping manual records rather than using a software package, you could miss out the SLCA, and just post the bank/sales and customer account dr/cr, but this would not be considered best practice.

    Any entry on an individual customer a/c should always be reflected on the SLCA.

    In the real world of course there are many options and a lot would depend on systems in use and the objective of recording the cash sales against individual customers.

  • soroem1
    soroem1 Registered Posts: 12
    Thank you very much CeeJay.

    Yes its a theoretical question, but I feel I need to ask them and run through these sorts of scenarios in order to fully understand correct procedure and what is possible/allowable etc.

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