What is a Sales Ledger and How it Works in Accounting
Maria Peloponisiou~ 4 min Reading time | 26. Aug 2019
A sales ledger is a detailed and itemized breakdown of all sales that have taken place and whether or not they have been paid. Often the ledger will contain detailed information about the sale itself, including the itemized invoice, amount of tax, and credit notes applied.
Items recorded in the sales ledger are then transferred to the appropriate general ledger account at regular intervals, anywhere from once a day to once a month depending on the nature of the business. This separation helps keep the general ledger from getting bogged down with too many accounts, while still maintaining the detailed records you might need for auditing or reporting. In accounting software, the sales ledger will often be simplified into several different reports you can view depending on what you need it for.
What information is included in a sales ledger?
The sales ledger will often itemize sales by date and by customer account and includes both the amount of each invoice and the amount each customer owes and has paid. Using this tool, you’ll be able to view your total accounts receivable, and your accounts receivable breakdown by customer. When you receive a payment, it gets recorded in the sales ledger next to the invoice information, to make sure the payment matches the amount owed. Credit notes on a customer’s account are usually listed in the same manner as invoices and note the original invoice they refer to.
Why is a sales ledger important to your business?
There are many different ways a sales ledger can be useful and knowing how it can help you in the future will help you keep more meticulous records in the present. It might not seem important to track sales if you’re starting out, but once you have issued enough invoices, you’ll soon realize that having this record can save you a lot of hassle. Here are a few different reasons a sales ledger is essential for business operations:
1. Tracking your Accounts Receivable
Once you’ve sent a few invoices, you’ll often realize that clients vary widely in how promptly and accurately they pay you. While some clients may use EFT and credit card payments as soon as the invoice arrives, this is often the exception rather than the rule, particularly if some of your clients are larger companies. Sometimes handwritten cheques can have transposed numbers by accident, or payments made for multiple invoices may be based on incorrect math, meaning the payment you receive won’t match what’s on the invoice. Having a sales ledger to enter their payments into means that you will always ensure that their payment matches the amounts you charged, and any discrepancies can be fixed sooner rather than later.
Additionally, some clients may take a long time to pay, and you’ll have to send gentle reminders to let them know you’re still waiting on your money. A sales ledger will let you view your receivables, which will help you know as soon as collections become an issue. When you’re sending payment reminders to clients, particularly if you have multiple clients you invoice often, it’s better to be able to send each client a list of all the invoices they owe. Without a sales ledger to pull this report from, it would be much more time consuming and difficult to compile this list.
The detailed information in a sales ledger can provide a breakdown of big-picture reports. For example, if you notice in a top-down analysis that you have sold a lot of a particular type of product or service, it can help to dig into more detailed sales data before investing more heavily in promoting it. You may notice, on further investigation, that it’s just one large client that is interested in a specific niche thing you offer, but that other products or services appeal to a greater range of clients.
When you’re connecting financial reports to marketing endeavours, this can be extremely valuable insight, since you don’t want to spend time and money advertising the wrong product. If you’re thinking about starting a marketing campaign like an email newsletter, you can take a look at your sales records to find out what types of products appeal to what clients. The sales ledger will also tell you how much each client has spent in total, so you can gain a sense of which ones might respond to marketing efforts and therefore how to focus them.
Being audited is never fun, but one way to make it go as smoothly as possible is to document all of your transactions carefully. Having a sales ledger means you will have all the information on hand you need should any question arise about your income. This can be particularly important if you’re registered for VAT – auditors will probably want to see a selection of invoices and what taxes you charged on them, to make sure you are charging the correct amount.
Although it may seem like a hassle to keep such detailed information with each purchase, it’s not difficult at all if you have the right tools to do it. Accounting software like Billomat can automatically update your numbers when you create invoices and receive digital payments, saving you time doing data entry—but also saving the records you need.