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1 Answer

  1. This answer was edited.

    In the modern business world, sales are made on credit as well as cash basis. Even though there’s a high risk of bad debts in selling goods on a credit basis, the companies prefer the same to develop customer loyalty and meet the cut-throat competition.

    ‘Sold goods on credit’ is nothing but the sale of goods on a credit basis i.e. providing goods to the customer with an expectation of receiving the payment in the future. This amount owed by the debtor leads to an increase in the accounts receivables of the company and is a current asset.

    Journal entry for sold goods on credit

    The respective debtor account is debited while the sales account is credited.

    1. According to the golden rules of accounting:

    Debtors a/cDebitDebit  the receiver
    To Sales a/cCreditCredit all incomes and gains

    (being goods sold on credit)

    2. According to the modern rules of accounting:

    Debtors a/cDebitDebit  the increase in asset
    To Sales a/cCreditCredit the increase in revenue

    (being goods sold on credit)


    XYZ Ltd. sold goods amounting to 50,000 to Mr. A on credit. The journal entry in the books of XYZ Ltd. is as follows:

    Mr. A’s a/cDebit50,000
    To Sales a/cCredit50,000

    (being goods sold on credit)

    Hope this helps.

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