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Confused - PEARLS

  • Student
  • 12 posts
  • # 116246

Hi, Completely new studying Level 2, quick question.

Looking at PEARLS, R is Revenue (Income from Sales) Increase by Adding a Credit Entry.

When I look at some of the samples I've been given in the Sales Ledger the Sales are shown in the Debit Column, which I assume because it's increasing an Asset. Why is it not a credit entry increasing Revenue?

Not sure what end of the stick I am holding, but its confusing.

Thanks

Paul

  • Associate
  • Practice Licence
  • 4 posts
  • # 116247

Hi

You are right you do Credit sales in the General Ledger when you make a sale but the Sales Ledger is different.

Where a customer has purchased from you on credit, this is recorded in that customer's individual account in the Sales Ledger as a debit.  This is because the customer hasn't paid for the order yet. (So you don't debit the Bank or Cash Account).  When the customer has paid then the Customer account in the sales ledger will be credited and Bank or Cash will be debited.  The total of the individual customer account balances is represented in the General Ledger as Sales Ledger Control so on the trial balance this will always be shown as a debit. 

This is the first time I have ever tried to explain this to anyone else so I hope it makes sense! Smile

Elizabeth

  • Student
  • 30 posts
  • # 116249

eLiz said:

Hi

You are right you do Credit sales in the General Ledger when you make a sale but the Sales Ledger is different.

Where a customer has purchased from you on credit, this is recorded in that customer's individual account in the Sales Ledger as a debit.  This is because the customer hasn't paid for the order yet. (So you don't debit the Bank or Cash Account).  When the customer has paid then the Customer account in the sales ledger will be credited and Bank or Cash will be debited.  The total of the individual customer account balances is represented in the General Ledger as Sales Ledger Control so on the trial balance this will always be shown as a debit. 

This is the first time I have ever tried to explain this to anyone else so I hope it makes sense! Smile

Elizabeth


 But sales can be cash sale also not just the ones that go into the Ledger as a debit. It still confueses me sometimes and I've just passed my B1. But in a nutshell that sounds about right.

  • Associate
  • Practice Licence
  • 4 posts
  • # 116250

Don't worry about being confused.  I spent the whole of Level 2 feeling confused but just followed the instructions and passed the exams.  At some point during Level 3 it all started making more sense.  At Level 3 you start to understand why you are doing what you are doing because you see how all the figures translate in to the Profit and Loss Account and the  Balance Sheet.  Just keep going and it will all click in to place in the end.

  • Student
  • 12 posts
  • # 116254

eLiz said:

Hi

You are right you do Credit sales in the General Ledger when you make a sale but the Sales Ledger is different.

Where a customer has purchased from you on credit, this is recorded in that customer's individual account in the Sales Ledger as a debit.  This is because the customer hasn't paid for the order yet. (So you don't debit the Bank or Cash Account).  When the customer has paid then the Customer account in the sales ledger will be credited and Bank or Cash will be debited.  The total of the individual customer account balances is represented in the General Ledger as Sales Ledger Control so on the trial balance this will always be shown as a debit. 

This is the first time I have ever tried to explain this to anyone else so I hope it makes sense! Smile

Elizabeth


 Elizabeth that's great thank you. I am sure it will all fall in to place as I progress.

  • Student
  • 10 posts
  • # 116260

Hi Paul

I am looking for an online study buddy
I am available every day except Wednesday and Sunday on Skype
Time 8am to 9am
I believe there is no stupid questions only stupid answers
If interested please reply
Thank you 

Regards

Patrick

  • Associate
  • Practice Licence
  • 5 posts
  • # 116261

PaulW said:

Hi, Completely new studying Level 2, quick question.

Looking at PEARLS, R is Revenue (Income from Sales) Increase by Adding a Credit Entry.

When I look at some of the samples I've been given in the Sales Ledger the Sales are shown in the Debit Column, which I assume because it's increasing an Asset. Why is it not a credit entry increasing Revenue?

Not sure what end of the stick I am holding, but its confusing.

Thanks

Paul


 Hi Paul

I have always used the Dead Clic analogy below to help for journal entries and understanding what goes where

 

TO INCREASE

Debit              Credit

Expenses        Liabilities

Assets            Income

Drawings         Capital

 

Then when to decrease just reverse these, hope this helps !

  • Student
  • 12 posts
  • # 116265

pd said:

“Hi Paul

I am looking for an online study buddy
I am available every day except Wednesday and Sunday on Skype
Time 8am to 9am
I believe there is no stupid questions only stupid answers
If interested please reply
Thank you 

Regards

Patrick”

 Patrick

I work out of the UK for long periods so the times are no good.

Here is my email address and perhaps we can still help each other out. paul@inform.uk.net

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