Retail Accounting and Financial Transactions
Retail accounting records what the shop owns, owes and earns. The exam tests the accounting equation, double entry for common retail transactions, GST treatment, and the difference between markup and margin.
Rules and records
- Accounting equation: assets = liabilities + capital. Every transaction keeps it balanced.
- Double entry: every debit has an equal credit. Cash sale of ₹10,000 plus 9% CGST and 9% SGST: debit cash ₹11,800; credit sales ₹10,000; credit output CGST ₹900; credit output SGST ₹900.
- Books: cash book, bank book, purchase and sales journals, ledger, trial balance, then trading and profit-and-loss account and balance sheet.
- GST: output tax on sales, input tax credit on business purchases, CGST + SGST for intra-state and IGST for inter-state supply; GSTR-1 and GSTR-3B are the regular returns. Input credit is not available on personal or exempt purchases.
- Retail-specific entries: sales returns and credit notes, purchase returns and debit notes, trade discount (deducted on the invoice, not an expense), cash discount (an expense), shrinkage written off, stock valued at the lower of cost and net realisable value.
- Petty cash on the imprest system: a fixed float, topped back up to the float after each spend.
Worked example
An item costs ₹800. Markup on cost at 25% gives 800 × 1.25 = ₹1,000. A 25% margin on selling price gives 800 ÷ (1 − 0.25) = ₹1,066.67. Same words, two different prices - always confirm whether a percentage is on cost or on selling price.
Traps that cost marks
- Confusing markup with margin.
- Recording sales net of GST but forgetting the output tax liability.
- Treating trade discount as an expense instead of a reduction in invoice value.
- Ignoring credit notes for returns, which overstates both sales and GST payable.