Debitoor Dictionary

Accounting terms explained in a simple way

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Sales - What are sales?

A sale is an exchange of money for goods, services, or other property. In accounting, net sales refer to the operating revenues earned by a company by selling their products or services

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The definition of the term ‘sales’ in business varies depending on the specific context in which it is used. Put simply: in accounting, sales refers to a company's revenue earned from the sales of products or services (net sales).

In general business operations, sales refers to any transaction where money or value is exchanged for the ownership of a good or entitlement to a service.

Sales in accounting

When bookkeeping, a company’s net sales are reported on the profit and loss account as ‘Sales’ or ‘Net sales’.

From an accounting point of view, sales do not occur until the product is delivered. In financial ratios that use sales values from the profit and loss account, "sales" refers to net sales, not gross sales. Sales are the unique transactions that occur in professional selling or during marketing initiatives.

  • Gross sales includes all of the sales, before refunds or other deductions are removed from the total amount

  • Net sales refer to the amount of revenue made in sales after any refunds and deductions are removed and is a truer reflection of the earnings

Usually, fees for services rendered 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.

Sales in double-entry bookkeeping

When using the double-entry bookkeeping method, a sale is recorded in the journal as a debit to cash or accounts receivable and as a credit to the sales account.

The amount recorded is the actual monetary value of the transaction, not the list price of the merchandise – e.g. the price after discounts, tax, or otherwise have been applied.

Sales in general business operations

The term ‘sale’ in a general business context involves an exchange of money or value for either a transfer of the ownership of a good or property or the entitlement to a service.

Elements that must be present in order to make a sale valid are:

  1. The competence of both the seller and the buyer to enter into a contract
  2. Mutual agreement on the terms of exchange
  3. Something that is capable of being transferred (a good, an ownership title, entitlement to a certain service, etc)
  4. A consideration in money (or its equivalent in value) paid or promised

Sales in accounting & invoicing software

Today, online accounting and invoicing software gives you the tools to manage your sales process from order to payment no matter where you are. With one of the larger subscriptions to Debitoor, your sales payments are automatically matched to the correct invoice when you upload your bank statement.

You can also enter payments on an invoice even while on the go, via our iPhone or Android apps. Staying on top of your sales has never been simpler.