Most businesses take in some form of cash. Whether you are operating a retail store with a point of sale location, an in-home service business that collects money for services rendered in the home, or a consulting firm that collects money from clients, you probably have some cash transactions.

At the time of sale, a sales slip is generated by hand or by cash register that includes information about the date of the purchase, a description of the merchandise purchased, the price of the merchandise, and, if applicable, the sales tax charged. This sales slip is important to both the customer and the merchant. The slip gives the customer proof that the item was purchased in the store on a particular date, which is important if the customer wants to return or exchange the merchandise. Most stores require a sales slip to accept merchandise for return or exchange. The sales slip gives the retailer the information needed to record the sale accurately and plays an important role in assuring that sales are reported. This second role is part of the discussion about internal controls in the “Controlling the Cash” section later in this chapter.

A sample cash register receipt for our fictitious company, Lisa’s Candle Shop, shows a lot of helpful information about the transaction:

You can quickly see that this sales slip, which was most likely generated automatically by a cash register, gives you a wealth of information you can use to record the transaction in your accounting system. You know the amount of cash collected, the number of items sold, the type of items that were sold, and the sales tax paid.

For the purposes of this chapter, let’s focus on the sales side of the transaction. (The next chapter takes a closer look at recording the information for the cost of sales and inventory.) Assuming that the cash is deposited into the checking account, the general ledger entry for this transaction would look something like the following.

You can see that just recording the sales side of the transaction affects three different accounts in the general ledger. Cash in Checking is an asset account on the balance sheet. The balance in this account is increased with the debit. Sales Tax Collected is a liability account on the balance sheet. Remember, you’ll have to pay sales taxes to the state and local governments, if any, at the end of the month, so you want to keep track of this liability. Tax reporting is covered in greater detail in Chapter 11. Sales of Goods is a P&L account, and its balance is increased by the credit. Note that the journal entry is balanced.

You probably would not record each sale individually in these accounts. This single transaction is just an example to show you how things work. Most retailers add up their sales at the end of the day and just do one entry for that day.