Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Enquiry Manual

Examining Accounts: Accounting Systems: Example of a Simple Sales System

On receipt of the customer’s order, a sales order (pre-printed and pre-numbered) is made out by the accounts department in duplicate. The top part is held by the accounts department and the bottom part by the stores. The stores use their copy to make up the order from stock and to enter up their stock records.

From their sales order copy, the accounts department make up an invoice - in triplicate.

Part Description
Top part Customer’s copy. Sent to customer in post by accounts department.
Second part Customer’s copy. Sent to customer with goods - in effect this acts as despatch note.
Third part Accounts department copy - used to write up records.

The accounts department copy is used to write up the sales day book and the customer’s ledger account. The details entered in the sales day book are

  • invoice date
  • customers name
  • sales invoice number
  • customers sales ledger account number
  • goods value of invoice (£)
  • VAT value of invoice (£)
  • gross invoice value (£).

The details entered in the customer’s sales ledger account gross invoice (debit side) are

  • invoice date
  • invoice number
  • gross invoice value.

From time to time, say monthly, the sales day book is totalled and the totals transferred to the nominal ledger as follows.

Credit side of sales A/c - goods invoice value for month

  1. The individual credit notes on the credit side of each customer account (from the day book or credit note book)
  2. The monthly totals:

Debit side of sales account - goods credit value for month.

Debit side of VAT account - VAT credit value for month.

When the invoice is paid by the customer the payment is entered in the debit side of the cash book and then posted to the credit side of the customer’s account in the sales ledger thus balancing the invoice value.

Sales Ledger control account format

DR CR    
1) Gross debtors balance b/f (see Note 1 below)   4) Total cash or cheques received from debtors (from cash book) (see Note 2 below) X
    5) Total discount allowed (per cash book or other record X
2) Total sales for year (from sales day book) X 6) Total credit notes (from sales day book or returns book)  
3) Difference w/o to sales (see Note 4 below) X 7) Gross debtors balances c/f at period end (see Note 3 below) X

Notes

  1. Balances brought forward should agree with the trade debtors figure in the previous year’s balance sheet. (This figure includes VAT.) Provisions for bad debts do not affect the control account. Balance sheet prepayments may also be included in the debtors figures - this is the probable cause of any difference if the figures do not agree. Another cause might be late adjustments made by the accountant. You will want to consider these adjustments. There may be reserves which should be reviewed.
  2. Cash received should agree with cash and bank account figures for receipts.
  3. List of sales ledger balances should agree to this figure when totalled.
  4. Any difference written off this side suggests that not all sales have been properly recorded. Even if the amount is small you should bear in mind the possibility that it is only the tip of the iceberg. Money received has outstripped invoices raised. You will want to consider how this may have happened and explore the possibility that there may have been other uninvoiced sales for which receipts have not been recorded.