Credit Purchases and Sales

Prerequisites: Module 12 — Accounts with Inventory

Learning Objectives

By the end of this module, you will be able to:

• Distinguish between cash and credit purchase/sale transactions
• Record credit purchases and sales in Tally with party details
• Navigate to Outstanding Payables and Receivables reports
• Explain how credit transactions affect the Balance Sheet

Cash vs Credit Transactions

Cash transaction: Payment happens at the same time as the goods/services exchange. Immediate settlement.

Credit transaction: Goods/services are exchanged now, payment will happen later. A debtor-creditor relationship is created.

For Sunrise Retail, most B2B transactions are on credit — standard practice in Indian electronics trade. Retailers typically get 30-45 day credit from distributors.

How Credit Transactions Appear in the Balance Sheet

After a credit purchase, the supplier becomes a Creditor — the amount owed appears as a Current Liability on the right side of the Balance Sheet.

After a credit sale, the customer becomes a Debtor — the amount receivable appears as a Current Asset on the left side of the Balance Sheet.

This is the fundamental difference between Accounts Only (just accounting entries) and understanding the balance sheet impact:

Credit Purchase → Liability created (Sundry Creditors ↑)
Credit Sale     → Asset created (Sundry Debtors ↑)
Payment to supplier → Liability reduced (Sundry Creditors ↓)
Receipt from customer → Asset reduced (Sundry Debtors ↓)

Sunrise Retail — Case Study Application

💼 Sunrise Retail Pvt Ltd — April 2025 Credit Transactions

Transaction 1: Credit Purchase from TechWorld (Apr 5)

100 Samsung phones from TechWorld Distributors, Mumbai @ ₹12,000 each.

• Interstate supply: IGST @ 18%
• Credit period: 30 days (due May 5)

Purchase Voucher (F9) in Tally:

Gateway → Accounting Vouchers → F9 (Purchase)
Date: 05-Apr-2025
Supplier Invoice No: TW/2025-26/001

Party Details:

Item Details:

GST auto-calculated (interstate → IGST):

Invoice Total: ₹14,16,000

Tally creates this journal entry automatically:

Balance Sheet impact (after this entry):

• Current Liabilities → TechWorld Distributors: ₹14,16,000 + ₹1,80,000 = ₹15,96,000 (new purchase added to opening balance)

Transaction 2: Credit Sale to Digital Hub (Apr 10, Intrastate)

30 Samsung phones to Digital Hub Retail, Secunderabad @ ₹16,000 each.

• Intrastate supply: CGST 9% + SGST 9%
• Credit period: 15 days (due April 25)

Sales Voucher (F8) in Tally:

Gateway → Accounting Vouchers → F8 (Sales)
Date: 10-Apr-2025
Invoice No: SR/2025-26/001

GST (intrastate → CGST + SGST):

Invoice Total: ₹5,66,400

Tally journal entry:

Stock update:

• Samsung Mobile Phones: 150 − 30 = 120 Nos remaining

Transaction 3: Credit Sale to CloudStore (Apr 12, Interstate)

20 Samsung phones to CloudStore Online Pvt Ltd, Bangalore @ ₹16,500 each.

• Interstate supply (Telangana → Karnataka): IGST 18%
• Credit period: 30 days (due May 12)

Sales Voucher (F8) in Tally:

Date: 12-Apr-2025
Invoice No: SR/2025-26/002
Party: CloudStore Online Pvt Ltd
Place of Supply: Karnataka

GST (interstate → IGST):

Invoice Total: ₹3,89,400

Stock update:

• Samsung Mobile Phones: 120 − 20 = 100 Nos remaining

Viewing Outstanding Reports in Tally

After recording these credit transactions, Tally automatically maintains outstanding registers. No manual tracking needed.

Outstanding Payables (Who We Owe)

Gateway of Tally → Reports → Statements of Accounts → Outstanding → Payables

Sunrise Retail — Outstanding Payables as of April 12:

After April 20 payment of ₹5,00,000:

• TechWorld balance: ₹15,96,000 − ₹5,00,000 = ₹10,96,000

Outstanding Receivables (Who Owes Us)

Gateway of Tally → Reports → Statements of Accounts → Outstanding → Receivables

Sunrise Retail — Outstanding Receivables as of April 12:

After April 18 receipt of ₹5,66,400 from Digital Hub:

• Digital Hub: ₹0 (fully paid)
• CloudStore: ₹3,89,400 (still outstanding)

Ageing Analysis

Tally also provides ageing — how long debts have been outstanding:

Gateway → Reports → Outstanding → Receivables → Press F5 (Ageing)

This shows: 0-30 days, 31-60 days, 61-90 days, 90+ days buckets. Critical for identifying overdue accounts.

GST Output vs Input — The Net Effect

After all April credit transactions, Sunrise Retail's GST position:

Net GST liability before IGST offset: ₹81,000 CGST+SGST payable IGST credit available: ₹1,56,600

IGST credit can be used to pay CGST and SGST. Full GST filing (GSTR-3B) will net all three against each other.

Practice Exercise

Exercise 1: On May 5, Sunrise Retail makes these credit sales:

• 15 Dell Laptops to Tech Park Retail Store @ ₹42,000 each (intrastate, CGST+SGST 9%)
• 10 iPad Tablets to CloudStore @ ₹32,000 each (interstate, IGST 18%)

Calculate invoice totals and write the journal entries for both sales.

Exercise 2: From the Outstanding Receivables report, you notice Tech Park Retail Store's invoice is 45 days overdue (May 5 sale, no payment by June 20). What actions should the accountant take, and what journal entry might be required?

Key Terms

Module Summary

• Credit purchases create a creditor (liability); credit sales create a debtor (asset)
• In Tally, Purchase Voucher (F9) and Sales Voucher (F8) automatically update the outstanding registers
• Outstanding Payables and Receivables are live reports — no manual maintenance needed
• Tally's Ageing Analysis helps identify overdue accounts before they become bad debts
• GST is calculated automatically based on Place of Supply: same state = CGST+SGST, different state = IGST
• After April activity: TechWorld outstanding ₹10,96,000 (liability); CloudStore outstanding ₹3,89,400 (asset)

Quick Quiz

1. After Sunrise Retail's April 10 credit sale to Digital Hub (₹5,66,400), Digital Hub's account shows:
   • a) Credit balance — they owe money to someone else
   • b) Debit balance — Digital Hub owes money to Sunrise Retail
   • c) Zero balance — the sale was already paid
   • d) Credit balance — Sunrise Retail owes them

2. Outstanding Receivables report is accessed via:
   • a) Gateway → Balance Sheet → Current Assets
   • b) Gateway → Reports → Statements of Accounts → Outstanding → Receivables
   • c) Gateway → Day Book → Filter by debtors
   • d) Gateway → Trial Balance

3. CloudStore is in Karnataka. Sunrise Retail is in Telangana. The applicable GST is:
   • a) CGST + SGST (split equally)
   • b) IGST
   • c) No GST on interstate B2B sales
   • d) CGST only

4. After TechWorld's opening balance (₹1,80,000) and April 5 purchase (₹14,16,000), then April 20 payment (₹5,00,000), the outstanding to TechWorld is:
   • a) ₹14,16,000
   • b) ₹10,96,000
   • c) ₹9,16,000
   • d) ₹15,96,000

Next: Module 14 — Purchase and Sales Returns — What happens when goods come back: Debit Notes for the 5 defective TechWorld phones, Credit Notes for Digital Hub's 2-phone return, and the GST reversal entries.