This posting addresses credit sales.
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How are credit sales booked? On which statement(s) do they show up?
Are they considered assets, equity, or something else?
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Solution Summary
The solution provides a detailed discussion on credit sales, including how credit sales are booked, the statements that they show up on, and how they are classified (assets, equity, or another category). References are also provided.
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Credit sales are booked as revenues that are earned, but booked as sales on credit, as opposed to customers that have paid by cash. The credit sale generates an open accounts receivable for the customer. The issuing company carries it on their books as an account receivable. The company who the credit sale was issued to carries it as an accounts payable for the amount of the sale.
The credit sale records to the company's balance sheet under accounts receivable, for the amount of the sale that was made. Accounts receivables are always assets to the company that has made the sale.
Here are a few different examples of credit sales:
A company sells goods to ...
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