Example-7 Sold goods worth £4000 to Mr. Ambar on credit
Step 1- Identify
the two accounts involved in this transaction
1. Asset
Account (Goods are assets)
2. Asset Account (Mr.
Ambar is an asset account (Trade Debtors/Receivable) because, as a result of
the above transaction the business has the right to receive £4000 from Mr.
Ambar)
When goods are sold we credit “Sales Account” not
“Goods Account”
Step 2- Understand
the nature of the impact of the transaction on the two accounts [goods (Asset) and Debtors- Mr. Ambar (Asset)]
Sale of goods decrease the asset by £4000
The
amount owed by others to business is termed as Debtors/Receivables. So such
amount receivable is arisen/increases as the result of credit sales- that is the value
of asset is increased
Step 3- Decide
which account is to be debited and which is to be credited.
We know that;
When asset account (goods-termed
as sales) decreases it is to be Credited and,
When Asser account
(Debtors- Mr. Ambar) increases it is to be debited
So, entry is:
Debit
Mr. Ambar Account with £4000
|
Credit
Sales Account with £4000
|
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