Sales (accounting)
Encyclopedia
In bookkeeping
, accounting, and finance
, Net sales are operating revenue
s earned by a company when it sells its products. Revenue (net sales) are reported directly on the income statement
as Sales or Net sales.
In financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales. Sales
are the unique transactions that occur in professional selling
or during marketing
initiatives.
Revenue is earned when goods are delivered or services are rendered. The term sales in a marketing
, advertising
or a general business context often refers to a contract
in which a buyer has agreed to purchase some products at a set time in the future. From an accounting standpoint, sales do not occur until the product is delivered. "Outstanding orders" refers to sales orders that have not been filled.
A sale is a transfer of property for money or credit. In double-entry bookkeeping, a sale of merchandise is recorded in the general journal
as a debit
to cash or accounts receivable
and a credit
to the sales account. The amount recorded is the actual monetary value of the transaction, not the list price of the merchandise. A discount
from list price might be noted if it applies to the sale.
Fees for services are recorded separately from sales of merchandise, but the bookkeeping transactions for recording "sales" of services are similar to those for recording sales of tangible goods.
Gross sales are the sum of all sales during a time period. Net sales are gross sales minus sales returns, sales allowances, and sales discounts. Gross sales do not normally appear on an income statement
. The sales figures reported on an income statement are net sales.
Sales Returns and Allowances and Sales Discounts are contra-revenue accounts.
Revenue or Sales reported on the income statement are net sales after deducting Sales Returns and Allowances and Sales Discounts.
sales, this includes excise taxes on certain products.
Bookkeeping
Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually...
, accounting, and finance
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
, Net sales are operating revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
s earned by a company when it sells its products. Revenue (net sales) are reported directly on the income statement
Income statement
Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...
as Sales or Net sales.
In financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales. Sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
are the unique transactions that occur in professional selling
Selling
Selling is offering to exchange something of value for something else. The something of value being offered may be tangible or intangible. The something else, usually money, is most often seen by the seller as being of equal or greater value than that being offered for sale.Another person or...
or during marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
initiatives.
Revenue is earned when goods are delivered or services are rendered. The term sales in a marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
, advertising
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
or a general business context often refers to a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
in which a buyer has agreed to purchase some products at a set time in the future. From an accounting standpoint, sales do not occur until the product is delivered. "Outstanding orders" refers to sales orders that have not been filled.
| General Journal | |||
|---|---|---|---|
| Date | Description of entry | Debit | Credit |
| 7-7 | Cash | 200.00 | |
| Sales | 200.00 | ||
| Sell 10 books at 20% discount. | |||
| 7-10 | Accounts receivable | 125.00 | |
| Services | 125.00 | ||
| Consulting fee. | |||
A sale is a transfer of property for money or credit. In double-entry bookkeeping, a sale of merchandise is recorded in the general journal
General journal
The general journal is where double entry bookkeeping entries are recorded by debiting one or more accounts and crediting another one or more accounts with the same total amount...
as a debit
Debits and credits
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction and vice versa.Debits and credits are a system of notation...
to cash or accounts receivable
Accounts receivable
Accounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
and a credit
Debits and credits
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction and vice versa.Debits and credits are a system of notation...
to the sales account. The amount recorded is the actual monetary value of the transaction, not the list price of the merchandise. A discount
Discounts and allowances
Discounts and allowances are reductions to a basic price of goods or services.They can occur anywhere in the distribution channel, modifying either the manufacturer's list price , the retail price , or the list price Discounts and allowances are reductions to a basic price of goods or services.They...
from list price might be noted if it applies to the sale.
Fees for services are recorded separately from sales of merchandise, but the bookkeeping transactions for recording "sales" of services are similar to those for recording sales of tangible goods.
Gross sales and net sales
| General Journal - Merchandise return example | |||
|---|---|---|---|
| Date | Description of entry | Debit | Credit |
| 8-7 | Sales Returns and Allowances | 20.00 | |
| Accounts Receivable | 20.00 | ||
| Full credit for customer return of merchandise purchased on account. | |||
| 8-7 | Inventory | 15.00 | |
| Cost of Goods Sold | 15.00 | ||
| Restore returned merchandise to inventory. | |||
Gross sales are the sum of all sales during a time period. Net sales are gross sales minus sales returns, sales allowances, and sales discounts. Gross sales do not normally appear on an income statement
Income statement
Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...
. The sales figures reported on an income statement are net sales.
- sales returns are refunds to customers for returned merchandise
- sales allowances are reductions in sales price for merchandise with minor defects, the allowance agreed upon after the customer has purchased the merchandise (see also credit noteCredit noteA credit note or credit memorandum is a commercial document issued by a seller to a buyer. The seller usually issues a Credit Memo for the same or lower amount than the invoice, and then repays the money to the buyer or sets it off against a balance due from other transactions.It can also be a...
) - sales discounts are reduced payments from the customer based on invoice payment terms such as 2/10, n/30 (2% discount if paid within 10 days, net invoice total due in 30 days)
Sales Returns and Allowances and Sales Discounts are contra-revenue accounts.
| General Journal - Sales discount example | |||
|---|---|---|---|
| Date | Description of entry | Debit | Credit |
| 9-1 | Accounts Receivable (Customer A) | 500.00 | |
| Sales | 500.00 | ||
| Merchandise sale on account, terms 2/10, n/30. | |||
| 9-7 | Cash | 490.00 | |
| Sales Discounts | 10.00 | ||
| Accounts Receivable (Customer A) | 500.00 | ||
| A/R paid by Customer A, taking a 2% discount. | |||
Revenue or Sales reported on the income statement are net sales after deducting Sales Returns and Allowances and Sales Discounts.
| Revenue: | ||
| Sales | $2,000.00 | |
| Less Sales returns and allowances | $20.00 | |
| Sales discounts | $10.00 | $30.00 |
| Net sales | $1,970.00 |
Unique definitions
When the US government reports wholesaleWholesale
Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services...
sales, this includes excise taxes on certain products.