AdamR wrote: »
My class was taught to remember DEAL and CLIP:
There are others out there as well using the same sort of idea.
Raging Pineapples wrote: »
People often get confused with why a sale is on the credit side, because sales are a good thing, and people associate credits with liabilities (which are usually a bad thing).
So why are Sales on the credit side?
Well your Sales are gonna be your profit aren't they? And your profit will ultimately go to the owner of the business.
So money from your Sales is owed to the business' owner. Purchases reduce that debt just like a credit note would reduce any other debt. It's just the same as accounting for VAT: you gradually build up a liability and you pay it at the end of the year.
You can see the truth of this with what happens in the accounts at year end. Sales get netted off against purchases (just like Sales VAT and Purchase VAT) and the balance is paid as dividends to the owners (or in VAT, paid to The Revenue).
Do you see how this works?Summary
- Money from sales is owed by the business to its owner.
- Sales are therefore a credit.