Debitoor Dictionary

Accounting terms explained in a simple way

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Sales - What are sales?

Definition: 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.

The definition of the term ‘sales’ in business varies depending on the specific context in which its 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, sales refers to a 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.

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

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 have a valid sale 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