'Sales Revenue' Definition:

Sales Revenue, or simply "Sales", is the primary income account of merchandising and manufacturing firms. It is earned from selling goods to customers. Also known as: Sales, Income from Sales

Contents:
  1. Definition of sales revenue
  2. Classification and presentation
  3. Journal entries
  4. Examples

Classification and Presentation of Sales / Sales Revenue

"Sales" (or Sales Revenue) is an income account. It is presented as the first line in the income statement of merchandising and manufacturing firms.

"Net Sales" is often presented first in the body of an income statement. Net sales is the amount of actual sales after adjustments for sales returns, discounts, and allowances are made. The computation of net sales, when not presented in the income statement, is shown in the notes to financial statements.

Net sales can be computed as:

Net Sales = Sales - Sales Returns and Allowances - Sales Discount

Journal Entries

For cash sales, the pro-forma journal entry is:

Cash xx.xx  
Sales   xx.xx

"Sales" is credited since it is an income account. Income accounts are increased by crediting them. "Cash" is debited for the amount received.

For credit sales (sales on account), the journal entry would be:

Accounts Receivable xx.xx  
Sales   xx.xx

For sales on account, the amount is to be collected at a future date. Hence, it is recorded by debiting "Accounts Receivable" instead of "Cash".

Examples

1. Supra Company, a merchandising firm that sells furniture, sold a sofa set and received the entire amount for $2,000. The journal entry to record the sale would be:

Cash 2,000.00  
Sales   2,000.00

2. VASAL, a vase-making company, sold 1,000 units of vases for $5 each to one of its distributors, on credit. The distributor is given 15 days to pay for the vases. In the books of VASAL, the entry to record the sale would be:

Accounts Receivable 5,000.00  
Sales   5,000.00

The journal entry to record sales always contains a credit to the sales account. "Sales" is an income account, hence is credited when recognized. The corresponding debit will depend whether the sale was made for cash (debit: Cash) or on credit (debit: Accounts Receivable). "Notes Receivable" may also be debited if the customer issues a promissory note.

If the customer pays a portion in cash and the balance is to be paid in the future, then the journal entry will have two debits: "Cash" for the amount collected and "Accounts Receivable" for the amount to be collected.

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