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‘Sales’ means the selling of goods which the business normally deals in. The goods are made or bought specifically for resale. For instance, if a company sells a piece of machinery, it is not recorded as a sale if the company does not deal in the manufacture of or the buying and selling of machines.

There are two ways sales are carried out. They can be sales for cash or sales on credit.

If it is cash sales, the following accounts are recorded:

  1. Debit the cash account
  2. Credit the sales account

The cash is immediately received for the sale, and the cash account is debited to show an increase in the cash balance. The stock of goods is a debit balance and a credit entry in the sale account is needed to reduce it.

If it is a sale on credit, two sets of accounts will be recorded.

  1. Debit the debtor account
  2. Credit the sales account

When the debtor makes the payment:

  1. Debit the cash account
  2. Credit the debtor account

A debtor account is opened or added for the individual or firm that makes the purchase. This debtor account is debited as payment has not been received for the sale, and the sale account is credited to decrease the stock of goods which is a debit balance. When partial or whole payment is received from the debtor, the debtor account is credited to reduce or offset the outstanding balance. The cash account is debited as the asset of cash is increased.

Last Updated (Saturday, 23 October 2010 11:03)