Accounting Standards

Introduction

Accounting techniques are essential for the prosperity of every business. Every business should keep detailed and accurate records showing business performance. Accounting helps in preparing records such as financial records and journals, and these records help investors, lenders, and owners of the business to make informed decisions regarding the business. This paper explores how various accounting principles such as GAAP and IFRS are used in guiding accounting activities, how financial statements impact business performance, and how sales journal entry is an example of a financial statement.

Sales Journal Entries

A sales journal is an example of a general journal in accounting. This type of journal is part of the record-keeping system that records an event or a transaction. Major entries made in this journal include; asset sales, interest income, depreciation, stock sales, and interest expenses (Jensen, 2017). To create an effective sales journal, the accountant should debit and credit entries appropriately and ensure that, in the end, the debit balance equals the credit balance. Debit and credit entries affect the account in various ways (Jensen, 2017). For example, assets and expenses are increased by debits and decreased by credits.

On the other hand, revenue, equity, and liabilities are increased by credit and reduced by debits. There are two types of sales journal entries depending on the payment mode of the customer; these are; cash sales journal entries and credit sales journal entries (Jensen, 2017). Also, these types of journals defer depending on sales tax.

 

Cash Sales Journal Entry

To prepare a cash sales journal, an accountant should record entries when a customer pays in cash by debiting the cash account and crediting the revenue account (Jensen, 2017). This entry indicates an increase in cash and business revenue.

Date	Account	Notes	Debit	Credit
x/xx/XXXX	Cash		x
	Revenue			x

 

Practically, these transactions will affect the two accounts and have an impact on sales tax, which is a liability (Wilder, 2016). Therefore sales tax should be credited to show an increase in sales tax liability. Debit and credit columns should equal each other in this journal. This transaction is illustrated in the table below:

Date	Account	Notes	Debit	Credit
x/xx/xxx	Cash		x
	Sales Tax Payable			x
	Revenue			x

 

Example of Cash Sales Journal without Sales Tax

Let us take an instance where a customer pays the business $1000. You should debit the cash account with $1000 and also the credit revenue account with $1000.

Date	Account
x/xx/XXXX	Cash		1000
	Revenue			1000

 

Example of Cash Sales Journal with Sales Tax

Let us consider when a customer pays in cash and is subjected to 5% sales tax. If the customer had paid $100, he/she must pay $5($100x 0.05) in sales tax. This makes the total amount that the customer gives the business to be $105.

Date	Account	Notes	Debit	Credit
x/xx/XXXX	Cash		105
	Sales Tax Payable			5
	Revenue			100

 

Credit Sales Journal Entry

When the business offers credit to customers, they get goods and services without paying for them immediately. Therefore, an accountant should increase receivable accounts instead of cash account (Wilder, 2016). Accounts receivable account represents the total number of customers who owe the business. When these customers make their payment, you can reverse entries, decrease accounts receivable accounts,s and increase the cash account (Wilder, 2016). Also, you need to increase the revenue account to indicate that the business is bringing in the amount the customers owe the business.

Date	Account	Notes	Debit	Credit
	Accounts Receivable		x
	Revenue			x

 

Like in cash sales journal entries, we are likely to deal with sales tax. In this case, the accounts receivable total should equal the total of sales tax payable and revenue accounts (Wilder, 2016). When the customer pays their debts, account, and accounts receivable are affected.

Date	Account	Notes	Debit	Credit
x/xx/xxxx	Accounts Receivable		x
	Sales Tax Payable			x
	Revenue			x

 

Example without sales tax

Let us take an example where a customer buys goods through credit amount to a total of $200. We should debit the Accounts receivable account for $200 and credit the revenue account for $200.

Date	Account	Notes	Debit	Credit
x/xx/XXXX	Cash		200
	Account Receivable			200

 

Example with sales tax

Let us consider an example where a customer buys goods on credit worth $240 plus a 5% sales tax. The customer will pay a total; of $252, which includes $12 sales tax. In this case, we should debit accounts receivable accounts and credit sales tax payable and revenue accounts (Wilder, 2016). This is illustrated in the table below:

Date	Account	Notes	Debit	Credit
x/xx/XXXX	Account Receivable		252
	Sales Tax Payable			12
	Revenue			240

 

When a business deals with inventory, sales journal becomes more complex.  When goods are sold to a customer with inventory, we get rid of the inventory and increase the cost of goods sold under the expenses account (Wilder, 2016). Cost of goods cold shows how much it costs the business owner to produce that particular good. Accounts affected by the sale of inventory journal are; revenue, sales tax payable, cash, inventory, and COGS (Wilder, 2016). The common Format of sales journal is as shown below:

 

 

Impact of Financial Statements on business performance

Financial statements are defined as summarized periodical reports in accounting containing financial and operative data stored in books of accounting known as a le