Cash Sales for Accounting Inventory - Chart of account transaction | Journal Entry

Cash sales are sales made against cash. It is where the seller receives the cash consideration at the time of delivery. Unlike credit sales, cash sales do not result in accounts receivable. It is not necessary that the seller must receive the currency notes to qualify a sale as cash sale. Sales involving direct immediate transfer to the seller bank account or payments through credit cards are also cash sales.

Example:
- Item cost         : $100 (Price from purchase item)
- Item price       : $120 (Price for sale to customer)
- Tax                  : 10%
- Discount         :  2%

Accounting for cash sales depends on whether any sales tax or value-added tax (VAT) or any other indirect tax is applicable to the products sold. If sales tax or VAT is not applicable, the sale is recorded as follows:

Any indirect tax is applicable, the seller is required to collect a certain percentage of the retail price as sales tax or VAT and pay it to the government. Cash received from cash sales to which sales tax or VAT applies is sum of the actual retail price and the sales tax collected on the behalf of the government. This transaction results in increase in cash, recognition of revenue and also gives rise to a liability, sales tax payable.