One thing is the selling process, like agreeing over the goods, their price and related conditions, but the other part of the sale and something we’re focusing on, is the accounting treatment of a relevant sales transaction. At the end of the day companies are making sales to earn profits, so accounting for the sale is equally important to ensure the sale is in fact helping to make profits in the accounts. Now, in a regular and most common situations the treatment itself is fairly same.

When the agreement has been reached, the seller usually either ships the goods or renders a service, whichever the case may be, and accounts for the sale. Accounting for the sale is done as follows:

▪ In case the buyer pays in cash:

Db: Cash
Cr: Revenue

▪ In case the buyer gets an invoice that’s to be paid on a later date:

Db: Receivables
Cr: Revenue

With this you’ve increased your assets either in the form of cash or receivable and also increased your income for the period. Please also take a note here that alongside the sale, if you’re selling goods, they are to be part of expenses at the time of the sale. So along with the above, you should also make the following entry:

Db: Cost of goods sold
Cr: Inventory

Now, with this, on top of recognizing the sale and the related assets, you have also accounted for what you’ve sold (i.e., goods). With this you have now effectively reached to a profit from the specific sale as well.