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could someone please explain to me as to why sales is always credited? im confused about it as to me in my brain a sale would mean we’ve increased our assets…confused please help!
Sales is income, when income increases it is always credited! It is basic rule of accounting!
There is double entry system..
when you do sales on credit entry is
A/C receivable debit
Sales creditso A/C receivable is asset.. due to sale, A/c is receivable is created!
if you do cash sales
entry is
Cash debit
sales creditone side is asset i.e cash it is increased!
hope its clear now..
According to accounting rules,
expense is debit entry,
income is credit entry.i didnt read anywhere the reason for this conventions. according to me, the reason is, income is treated by the company as a liability to the owners.
capital, income, profit is treated as a liability to the owners.
debit entry is something the company have, or they own.
assets, cost, inventory.company expense is what company spend to own something. sales is what when the company sells they own. sales are selling of their current asset.
i found 3 type of account.
1st type , classify the accounts as income or expense. if it is income then it is credit. if it is expense then it is debit. irrecoverable debt is unrealised loss so it is debit account. revaluation reserve is unrealised profit so it is credit account.2nd type i found . allowance is credited to find the net recievable value. there is no other explanation i found why it should be credit entry. similarly, accumulated depreciation is credited to find NBV.
3rd type i found, closing balance becomes opening, then it jumps from one column to next. very funny type. no logic needed just memorise it.
Would tell you the rule I use, and it fits in nicely. The rule is “credit the giver, debit the receiver”. When you make sales there are 2 a/c Sales account and Cash/Receivables account. Now ask yourself which account is giving which account. sales is giving either cash or receivables ‘value’, so using that simple convention, CR sales (it is giving value i.e. the giver), DR cash/receivables (it is receiving value i.e. the receiver). Try this for any double entry scenario. All you need know is which 2 accounts are involved.
But also, you need to know that cash/receivables are current asset, and like all asset accounts have a debit balance.
A credit entry represents 3 things
– An item of income
– An increase in liability/capital
– A decrease in asset
Now when you makes sales, you reduce inventory (assets). so you need to CR sales account, because
(1) You have reduced assets (inventory)
(2) Sales or revenue are also income. Because when you makes sales, cash flows inward (income) so CR sales.
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