Sales Journal Entry Guide
Businesses make their money by selling goods or services. The revenues brought in drive all other transactions, therefore the proper recording of those sales is essential in the bottom line coming out to an accurate number.
Making the journal entry for sales really depends on the type of organization making the sale, as we will see in the following examples. The first step is to determine if the entity is selling goods or services.
Journal Entry for Sales
Assuming your business sells inventory to someone for the sales price of $1,000 then you would need to record this entry. Any time cash is received, it would be a debit to cash, as this is the normal balance of the account. The normal balance of Sales is a credit, when we credit that account it also increases.
Dr. Cash $1,000
Cr. Sales $1,000
Journal Entry for Inventory Sales
Along with each sale of goods, there is a related cost of goods entry that must be booked to record the inventory being sold. When the inventory is delivered to the customer, it is taken off the books for the cost originally paid as a credit to inventory. The Cost of Goods Sold account, and expense account, is debited for the same cost as the inventory was recorded at, as shown below.
Dr. Cost of Goods Sold $700
Cr. Inventory $700
These two journal entries are generally booked simultaneously, as one action (selling an item to a customer) drives the need to book both of them.
Journal Entry for Sales of Services
Assuming the company making the sale is actually a service organization, that pays employees to perform services for a fee, the accounting is a little different. In the event that certain inventory is consumed and used in the process of providing the service, this will be recorded as part of Cost of Goods Sold as the previous journal entry shows. However to account for the cost of paying the employee that is providing the related services, the company will need to determine what the cost of these employees is.
Typically the company will perform a calculation to figure out the cost of sales related to the employees performing the service. Hourly and salaried employees will charge their time to jobs, or non-revenue related activities. The related journal entry for a $1,000 sale of services, with a $800 labor cost is as follows:
Dr. Cost of Services
Cr. Wages Payable
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