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What are Sales?

Definition: A transfer of ownership of property or other assets to a buyer in exchange for money. In accounting, net sales refer to the operating revenues earned by a company by selling their products or services.

The term ‘sales’ covers different concepts and depends on the specific context in which it's used. In accounting, the term 'sales' refers to a company's revenue earned from the sales of products or services (net sales).

In general business, sales refers to a transfer of ownership of a good or entitlement to a service, usually for consideration in money.

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 Accounting

In accounting, a company’s net sales are reported on the income statement as ‘Sales’or ‘Net sales’.

From an accounting point of view, a sale is not valid until the product has been delivered. When calculating financial ratios using income statement sales values, "sales" refers to net sales, and not gross sales. Sales are the unique transactions that occur in professional selling or during marketing initiatives.

Fees for services rendered are usually 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 general business

In a general business context, the term ‘sale’ involves an exchange of money or value for the transfer of ownership of property or other assets .

A sale requires the following elements to be valid:
      • Competence of both the buyer and the seller to enter into a contract
      • Something that is capable of being transferred (a good, an ownership title, entitlement to a certain service, etc)
      • Mutual agreement on the terms of exchange
      • Consideration in money (or its equivalent in value) paid or promised

 

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