Why are sales a credit? The account Sales is credited because a corporations sales of products will cause its stockholders equity to increase. A sole proprietorships sales will cause the owners 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 corporations Retained Earnings account or to the sole proprietorships Owners 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 owners or stockholders equity account will be increased with a credit.
Posted on: Tue, 20 May 2014 04:30:00 +0000
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