Sales (accounting)

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In bookkeeping, accounting, and financial accounting, net sales are operating revenues earned by a company for selling its products or rendering its services. Also referred to as revenue, they are reported directly on the income statement as Sales or Net sales.

Contents

In financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales. Sales are the unique transactions that occur in professional selling or during marketing initiatives.

Revenue is earned when goods are delivered or services are rendered. [1] The term sales in a marketing, advertising or a general business context often refers to a free in which a buyer has agreed to purchase some products at a set time in the future. From an accounting standpoint, sales do not occur until the product is delivered. "Outstanding orders" refers to sales orders that have not been filled.

Consulting fee.20000

A sale is a transfer of property for money or credit. [2] In double-entry bookkeeping, a sale of merchandise is recorded in the general journal as a debit to cash or accounts receivable and a credit to the sales account. [3] The amount recorded is the actual monetary value of the transaction, not the list price of the merchandise. A discount from list price might be noted if it applies to the sale.

Fees for services are recorded separately from sales of merchandise, but the bookkeeping transactions for recording "sales" of services are similar to those for recording sales of tangible goods.[ citation needed ]


Gross sales and net sales

General Journal - Merchandise return example
DateDescription of entryDebitCredit
8-7Sales Returns and Allowances20.00
  Accounts Receivable20.00
Full credit for customer return of merchandise purchased on account.
8-7Inventory15.00
  Cost of Goods Sold15.00
Restore returned merchandise to inventory.

Gross sales are the sum of all sales during a time period. Net sales are gross sales minus sales returns, sales allowances, and sales discounts. Gross sales do not normally appear on an income statement. The sales figures reported on an income statement are net sales. [4]

input vat - output vat

sales of portfolio items and capital gains taxes


Sales Returns and Allowances and Sales Discounts are contra-revenue accounts.

In a survey of nearly 200 senior marketing managers, 70 percent responded that they found the "sales total" metric very useful. [5]

General Journal - Sales discount example
DateDescription of entryDebitCredit
9-1Accounts Receivable (Customer A)500.00
  Sales500.00
Merchandise sale on account, terms 2/10, n/30.
9-7Cash490.00
Sales Discounts10.00
  Accounts Receivable (Customer A)500.00
A/R paid by Customer A, taking a 2% discount.


Revenue or Sales reported on the income statement are net sales after deducting Sales Returns and Allowances and Sales Discounts.

Revenue:
Sales$2,000.00
Less Sales returns and allowances$20.00
Sales discounts$10.00$30.00
Net sales$1,970.00

Unique definitions

When the US government reports wholesale sales, this includes excise taxes on certain products. [6]

Other terms

Net sales = gross sales – (customer discounts, returns, and allowances)
Gross profit = net salescost of goods sold
Operating profit = gross profit – total operating expenses
Net profit = operating profit – taxes – interest
Net profit = net salescost of goods soldoperating expense – taxes – interest

Related Research Articles

Bookkeeping Recording of financial transactions

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business and other organisations. It involves preparing source documents for all transactions, operations, and other events of a business. Transactions include purchases, sales, receipts and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, including the single-entry and double-entry bookkeeping systems. While these may be viewed as "real" bookkeeping, any process for recording financial transactions is a bookkeeping process.

Revenue Income that a business has from its normal business activities

In accounting, revenue is the income or increase in net assets that an entity has from its normal activities. Commercial revenue may also be referred to as sales or as turnover. Some companies receive revenue from interest, royalties, or other fees. "Revenue" may refer to income in general, or it may refer to the amount, in a monetary unit, earned during a period of time, as in "Last year, Company X had revenue of $42 million". Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, in the balance statement, revenue is a subsection of the Equity section and revenue increases equity, it is often referred to as the "top line" due to its position on the income statement at the very top. This is to be contrasted with the "bottom line" which denotes net income.

Cost of goods sold

Cost of goods sold (COGS) is the carrying value of goods sold during a particular period.

Debits and credits

In double entry bookkeeping, debits and credits are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value to that account, and a credit entry represents a transfer from the account. Each transaction transfers value from credited accounts to debited accounts. For example, a tenant who writes a rent cheque to a landlord would enter a credit for the bank account on which the cheque is drawn, and a debit in a rent expense account. Similarly, the landlord would enter a credit in the rent income account associated with the tenant and a debit for the bank account where the cheque is deposited.

Income statement

An income statement or profit and loss account is one of the financial statements of a company and shows the company's revenues and expenses during a particular period.

Accounts receivable Claims for payment held by a business

Accounts receivable, abbreviated as AR or A/R, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. These are generally in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame. Accounts receivable is shown in a balance sheet as an asset. It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered. These may be distinguished from notes receivable, which are debts created through formal legal instruments called promissory notes.

An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller had provided the buyer.

Account (bookkeeping)

In bookkeeping, an account refers to assets, liabilities, income, expenses, and equity, as represented by individual ledger pages, to which changes in value are chronologically recorded with debit and credit entries. These entries, referred to as postings, become part of a book of final entry or ledger. Examples of common financial accounts are sales, accounts receivable, mortgages, loans, PP&E, common stock, sales, services, wages and payroll.

Net income Measure of the profitability of a business venture

In business and accounting, net income is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period.

In business, operating margin—also known as operating income margin, operating profit margin, EBIT margin and return on sales (ROS)—is the ratio of operating income to net sales, usually expressed in percent.

Gross margin

Gross margin is the difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold, then divided by the same selling price. "Gross margin" is often used interchangeably with "gross profit", however the terms are different: "gross profit" is technically an absolute monetary amount and "gross margin" is technically a percentage or ratio.

Revenue recognition

The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle. They both determine the accounting period in which revenues and expenses are recognized. According to the principle, revenues are recognized when they are realized or realizable, and are earned, no matter when cash is received. In cash accounting – in contrast – revenues are recognized when cash is received no matter when goods or services are sold.

For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes and other deductions.

Special journals Specialized lists of financial transaction records

Special journals are specialized lists of financial transaction records which accountants call journal entries. In contrast to a general journal, each special journal records transactions of a specific type, such as sales or purchases. For example, when a company purchases merchandise from a vendor, and then in turn sells the merchandise to a customer, the purchase is recorded in one journal and the sale is recorded in another.

An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements. If inventory is not properly measured, expenses and revenues cannot be properly matched and a company could make poor business decisions.

Profit, in accounting, is an income distributed to the owner in a profitable market production process (business). Profit is a measure of profitability which is the owner's major interest in the income-formation process of market production. There are several profit measures in common use.

WorkingPoint is a web-based application providing a suite of small business management tools. It is designed to offer a single point-of-access for all business management needs while offering a user-friendly interface. WorkingPoint’s functionalities include double-entry bookkeeping, contact management, inventory management, invoicing and bill & expense management.

Financial ratio

A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.

The invoice price is the actual price that the end-customer retailer pays to the manufacturer or distributor for a product.

References

  1. Meigs & Meigs, Financial Accounting, Fourth Edition McGraw-Hill, 1983. p.124.
  2. Random House Dictionary, Revised Edition, 1975.
  3. Pinson, Linda and Jerry Jinnett. Keeping the Books, Second Edition Upstart Publishing Company, Inc., 1993. p. 15. This is a simplified example.
  4. Williams, Jan R.; Haka, Susan F.; Bettner, Mark S.; Carcello, Joseph V. (2006). Financial Accounting (12th ed.). Boston, Mass: McGraw-Hill/Irwin. pp. 261–263. ISBN   0-07-288467-3.
  5. Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeiffer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN   0-13-705829-2. The Marketing Accountability Standards Board (MASB) endorses the definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics as part of its ongoing Common Language: Marketing Activities and Metrics Project Archived 2013-02-12 at the Wayback Machine .
  6. Monthly Wholesale Trade Survey Definitions Statement