Definition: A sale is a transaction between a company and a customer. The company usually sells inventory for a larger amount than what it paid for it, so the company can recognize a profit. The word “sales,” on the other hand, has a slightly different meaning.
What Does Sales Mean?
In the accounting world, the word “sales” is usually associated with total company revenue rather than a single sale. The sales or revenue account is an equity account that increases when a sale occurs. When a company sells a product, it debits cash for the sale price and credits revenues for the same price.
Example How Sales are Recorded
This journal entry increases the company’s assets and the company’s equity. Here is an example of a typical sales journal entry.
Throughout the year companies sell products and increase their revenues accounts until the end of the year. At the end of the year companies close their temporary accounts including the revenue account. Al the revenue and expense accounts are closed to retained earnings. Before the sales accounts are closed, they are recorded on the company’s income statement. Sales or Revenue is the first item on any income statement.
The word “sales” is commonly used for all types of income generating sources not just sales of products. Services, rental income, and commissions are often called sales on companies’ books. In general, the word “sales” usually refers to a company’s revenue or income.