If A Company Fails To Record A Cash Sales

If a company or a business forgets to record a Cash Sales, then it affects cash account and sales account. Cash is a Current Asset and recorded on Balance Sheet and sales is a direct revenue and recorded on Income Statement or Profit And Loss Account.

The journal entry to record is shown below:

 

                                                              Cash a/c  XXX

                                                                              Sales a/c  XXX

                                                            (Goods sold for Cash)

 

As cash account is increasing i.e., we debit cash account when it is increasing according to the Rules of Debit And Credit. While sales  is also increasing as we credit it when it is increasing.

Since cash is increasing but it is not recorded in balance sheet, so it understates the total cash and ultimately total assets on assets side of balance sheet are also understated. Similarly, as sales (cash sales) is also not recorded, so it decreased the total revenues and hence as a result, the sales on Income Statement decreased which leads to less Net Income or Net Profit.