Walk up to the till at any Ontario store and you will see the same three choices: tap a debit card, tap a credit card, or (for business customers) take the goods now and pay the invoice later. To the customer these feel almost identical. To the store's accountant they are three different transactions. A debit card moves money out of the customer's bank account right away. A credit card means a bank or card network pays the store and then collects from the customer itself. A sale on account means the store itself is lending to the customer, so the store carries the risk that the customer never pays. The journal entries are different because who owes whom, and what it costs the store, is different.
Sales on account and credit terms
When a business sells to a customer on account, it sends an invoice that states the credit terms: how long the customer has to pay, and whether there is a reward for paying early. The terms 2/10, n/30 (read "two ten, net thirty") mean the customer may deduct a 2% cash discount if it pays within 10 days of the invoice date; otherwise the full (net) amount is due within 30 days. The terms n/30 alone mean no discount, full amount within 30 days. The seller records the early-payment reward in a contra-revenue account called Sales Discounts, which is subtracted from Sales on the income statement.
| Date | Account | Debit | Credit |
|---|---|---|---|
| 2026 Mar 3 | Accounts Receivable — Pine Ridge Camp | $2,260.00 | |
| Sales | $2,000.00 | ||
| HST Payable | $260.00 | ||
| Mar 3 | Cost of Goods Sold | $1,200.00 | |
| Merchandise Inventory | $1,200.00 | ||
| Mar 13 | Cash | $2,220.00 | |
| Sales Discounts | $40.00 | ||
| Accounts Receivable — Pine Ridge Camp | $2,260.00 |
Notice the two entries on March 3. Under a perpetual system every sale needs a second entry that moves the cost of the goods out of Merchandise Inventory and into Cost of Goods Sold. On March 13 the customer still owes the whole $2,260, so the full amount leaves Accounts Receivable even though only $2,220 of cash arrives; the $40 difference is the discount. If the customer had paid on April 2 instead (30 days after March 3), there would be no discount: debit Cash $2,260 and credit Accounts Receivable $2,260.
Bank credit card and debit card sales
A bank credit card sale (Visa, Mastercard and similar cards) is NOT a receivable for the store. The card-issuing bank pays the store, usually within a day or two, and takes on the job and the risk of collecting from the cardholder. In exchange, the store pays a merchant fee, typically a small percentage of each sale including tax. Because the store receives cash and never has to chase the customer, a credit card sale is recorded much like a cash sale, with the fee recorded as an expense: Credit Card Expense. A debit card sale moves money directly from the customer's bank account; the processor usually charges a small flat fee per transaction, recorded as Bank Charges (or Debit Card Expense).
| Date | Account | Debit | Credit |
|---|---|---|---|
| 2026 Mar 5 | Cash | $881.40 | |
| Credit Card Expense | $22.60 | ||
| Sales | $800.00 | ||
| HST Payable | $104.00 | ||
| Mar 6 | Cash | $338.60 | |
| Bank Charges | $0.40 | ||
| Sales | $300.00 | ||
| HST Payable | $39.00 |
- Credit card fee: , so the bank deposits .
- Debit card fee: a flat $0.40, so the deposit is .
- HST Payable is credited for the full 13% of the selling price. The fee does not reduce the tax the store owes, because the customer paid the full price.
- Some processors deposit the full amount daily and bill the fees once a month. Then each sale is recorded as debit Cash for the full total, and the monthly bill is recorded as debit Credit Card Expense, credit Cash. The total expense is the same either way.
- Cash arrives within a day or two
- The bank or processor carries the collection risk
- The store pays a fee, recorded as an expense
- No customer account to track
- Cash arrives in 10 to 30 days, or later
- The store carries the risk that the customer never pays
- No fee, but there may be a sales discount and possible bad debts
- Each customer needs an account in the subsidiary ledger
The accounts receivable control account and subsidiary ledger
A business with hundreds of credit customers cannot keep them all in one Accounts Receivable account, because it would never know who owes what. Recall from BAF3M that it keeps one account per customer in the accounts receivable subsidiary ledger, and a single Accounts Receivable control account in the general ledger that holds the total. Every amount posted to the control account is also posted to the matching customer's account. At the end of the month, a schedule of accounts receivable lists every customer balance, and its total must equal the control account balance.
| Customer | Balance |
|---|---|
| Pine Ridge Camp | $0.00 |
| Algonquin Trail Guides | $3,390.00 |
| Kawartha Paddle Club | $1,695.00 |
| Lakehead Scouts | $565.00 |
| Total = Accounts Receivable control | $5,650.00 |