Meaning Of Sales In Accounting
Meaning Of Sales In Accounting

In accounting, sales can be defined as the revenues earned when a company sells its products, goods, merchandise, etc. (If a company sells one of its noncurrent assets that was used in its business, the amount received will not be recorded in its Sales account.)

The amounts which was recorded at the time of the sales transaction is also called GROSS SALES since there may be subsequent subtractions for return outwards, trade discounts, and early payment discounts. (Gross sales minus the subtractions mentioned above results in the total of net sales.)

Under the accrual method of accounting, goods sold on credit are recorded as sales (revenue) when there has been a transfer of goods to the buyer. This usually occurs before the seller receives payment from the buyer. Credit sales are recorded by debiting Accounts Receivable and crediting Sales.

ACCOUNTING FOR SALES
As sale leads to an increase in the income and assets of the business, assets will be debited while income will be credited. Sales also results in the reduction of inventory, therefore the accounting prepared for inventory is separated from sale accounting.

SALES ARE EITHER ON CASH OR ON CREDIT.

Cash Sales
When a cash sale is made, the following double entry is recorded:
  • Debit Cash
  • Credit Sales Revenue (Income Statement)
Cash is debited to account because there is an increase in cash of the business while Sales revenue is credited to account due to increase in the income.

Credit Sale
In case of a credit sale in the business, the following double entry is recorded:
  • Debit Receivables
  • Credit Sales Revenue (Income Statement)
The double entry is same as in the case of a cash sale, except that a different asset account is debited (i.e. receivable).

When the receivable pays his due, the receivable balance will have be reduced to nil. The following double entry is recorded:
  • Debit Cash
  • Credit Receivables

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