Making a sale is what the business usually is about \u2013 you sell things or services to earn your living. That\u2019s what you\u2019re expected and supposed to do when you\u2019re in business. Now, there\u2019s also this thing called accounting for the sale obviously. <\/p>\n
Again, to start off, if you were living 100 years back and would own a shop for an example, you just charge customers money for the sale and put the money into your till. That\u2019s your sale and your revenue. From the funds in the till you purchase more goods and charge your customers again when they make a purchase in your store.<\/p>\n
Although nowadays in stores the system hasn\u2019t changed much, you\u2019re still expected to do something extra \u2013 you\u2019re expected to account for your sales. Now I wont go over why it\u2019s important not just for someone else but you so let\u2019s move onto the accounting entries now shall we?<\/p>\n
Your accounting entry in case a sale is made, should be something like this:<\/p>\n
(1) Debit \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (2) Account receivables \/ (3) Cash<\/p>\n
(4) Credit\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (5) Sales revenue<\/p>\n
And in case you\u2019re selling goods, the additional entry with every sale made is as follows:<\/p>\n
(6) Debit \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (7) Cost of goods sold<\/p>\n
(8) Credit\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (9) Inventory<\/p>\n
Let me explain now what this accounting entry is about.<\/p>\n
(1)\u00a0\u00a0\u00a0\u00a0\u00a0 You just made a sale and hence it\u2019s expected you got an asset \u2013 hence the debit entry that\u2019s about to increase your assets<\/strong>. Now note here that the asset can be in two forms \u2013 cash that you can use right away or receivable balance that\u2019s still to be collected.<\/p>\n (2)\u00a0\u00a0\u00a0\u00a0 Account receivable is something that you still have to work on in real life \u2013 you\u2019ve got to ensure your client pays up their debt<\/strong>. Normally you\u2019d expect no problems and as such there isn\u2019t much to be done initially with it. Just wait until the payment is due and account for the payment. In case they are late, make sure you contact them and let them know you\u2019re not leaving it just like that. But besides that the logic behind this receivable is the opposite when you\u2019re owing to your suppliers. You made a sale, but your client is going to pay at a later date. You\u2019re still accounting for the revenue and the receivable balance against it. It\u2019s still your asset; just it\u2019s a \u201creceivable\u201d. I think the name itself says it all.<\/p>\n (3)\u00a0\u00a0\u00a0\u00a0 The other form as we mentioned is cash<\/strong>. It\u2019s easy and simple. You sell something and you get paid for it right away. Nothing more to it. You account for the sale and the benefits received.<\/p>\n (4)\u00a0\u00a0\u00a0\u00a0 Since there cannot be a debit without a credit<\/strong>, there\u2019s something we should put onto the credit side with the \u201cI made a sale\u201d entry. When we\u2019re putting expenses onto the income statement with a debit entry than consequently all revenue and income is credits. It\u2019s something we\u2019ll explain further on when we talk about statements and then describe how the balance sheet works, but for this lets just say that revenue is on the credit side.<\/p>\n (5)\u00a0\u00a0\u00a0\u00a0 The most important line some people would say \u2013 sales revenue<\/strong>! You made a sale and obviously you should account for it. Doesn\u2019t really matter by which means you\u2019re getting paid \u2013 right away or later on \u2013 you made a sale and you should show it on your income statement.<\/p>\n (6)\u00a0\u00a0\u00a0\u00a0 As we mentioned earlier, with debits you charge expenses onto the income statement<\/strong>. With buying inventory it\u2019s not your expense at the time of the purchase, but at the time of the sale of the item.<\/p>\n (7)\u00a0\u00a0\u00a0\u00a0 Cost of goods sold is as the name says, expense of those goods that you had previously bought and that you\u2019re now charging into expenses since you sold them<\/strong>. They were your assets before the sale, but with selling them you don\u2019t own them and hence they are expensed. Note here that with every sale made there should be corresponding expense recognized as well (unless there isn\u2019t an expense like for real, for an example if you\u2019re selling advertising space on the outer walls of your shop).<\/p>\n (8)\u00a0\u00a0\u00a0\u00a0 When the debit side of this additional entry was expense onto the income statement then there\u2019s bound to be this something we\u2019re putting into expenses. In our case we\u2019re selling our inventory hence we\u2019re crediting our assets<\/strong>.<\/p>\n (9)\u00a0\u00a0\u00a0\u00a0 Something that very often gets forgotten is crediting the inventory balance<\/strong>. You made a sale, you account for the cash received or the receivable balance, but the inventory is something that should be done in addition \u2013 you sold something from your assets hence you should show that you don\u2019t own this asset any longer. Something I\u2019d suggest from personal experience is making those entries, both sale and the expense entry together. Always.<\/p>\n Making a sale is the most important thing you do in your business. Without it you would not have a business. It\u2019s the accounting entry your bound to do and hopefully pretty often. As a result I strongly recommend making it so that alongside with your revenue entry you\u2019re also charging for the expenses made for the sale, namely the goods sold with this particular sale. It\u2019s so easy to forget this at the start at least, trust me.<\/p>\n","protected":false},"excerpt":{"rendered":" Making a sale is what the business usually is about \u2013 you sell things or services to earn your living. That\u2019s what you\u2019re expected and supposed to do when you\u2019re in business. Now, there\u2019s also this thing called accounting for the sale obviously.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,35],"tags":[],"class_list":["post-3467","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-7-basic-entries"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3467","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=3467"}],"version-history":[{"count":4,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3467\/revisions"}],"predecessor-version":[{"id":3469,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3467\/revisions\/3469"}],"wp:attachment":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=3467"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=3467"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=3467"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}