WHY ARE SALES IS CREDIT?- By MaddaliSwetha
The account Sales is credited because a corporation’s sales of products will cause its stockholders’ equity to increase. A sole proprietorship’s sales will cause the owner’s equity to increase.
The Sales account is used in order to keep a tally of the
sales made during an accounting year. However, when the accounting year is
completed, the credit balance will be moved via closing entries to the
corporation’s Retained Earnings account or to the sole proprietorship’s Owner’s
Capital account.
Recall that asset accounts will likely have debit balances
and the liability and stockholders’ equity accounts will likely have credit
balances. To confirm that crediting the Sales account is logical, think of a
cash sale. The asset account Cash is debited and therefore the Sales account
will have to be credited.
Also the accounting equation will remain in balance
because the asset Cash is increased with a debit, and through the closing
entries an owner’s or stockholders’ equity account will be increased with a
credit.
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