Sales Account – Definition, Importance, Advantages

Sales account is defined as a record of all the transactions that are happening in the business, which include the sales carried out by credit as well as cash. This account is usually combined with the returns and allowances account, which will help to arrive at a figure which is called net sales.

What is Sales Account?

The requirement to keep a proper account arises from the fact that every business faces multiple transactions every day. This gave rise to a need to have a consolidated ledger that will hold the records of all transactions happening in the company, may it be large or small cash or credit transactions. This is where the concept of sales account was established.

The primary application of a sales account is to act as a record-keeping ledger, which would have the data of all the transactions carried out in the business for a given period. It has a provision for both Credit and debit transactions, and in some cases, separate space is allocated to distinguish both of the transactions. Some businesses use a new ledger for New Year and keep the transactions consolidated according to the day and month.

For example, every day, the transactions are started on a new page, and similarly, every new transaction happening every new month is initiated on a different page, which will keep all the transactions consolidated according to the day as well as according to the month. This will help the accountant to find a particular deal easily at any given point in time.

Importance of Sales Account

1. Reliability

The primary concern of having a sales account is that it increases the credibility in business transactions. Reliability is of importance, especially in large and medium scale businesses where several transactions happening every day are enormous. In such cases, whenever asked, the company should be able to produce the details of the transaction.

External or internal auditors can scrutinize the company during auditing, and this may happen once a year or several times a year, depending on transactions.

This is why having a Sales account register will always be helpful to reproduce the transaction details whenever required.

2. Record keeping

another important use of a Sales Account is to keep a record of all transactions. Keeping a record of all transactions helps calculate the net profit and loss for the business. It is also useful during the calculation of profit or loss year on year or even during the quarter to quarter or as required by the company.

Another essential use of record-keeping is to produce proof of transactions during taxation. Having records of all the transactions will help the business during filing of taxes, and if at all the scrutiny is made by the government regarding a suspicious transaction, then it will be easier for the company to show the proof of all transactions.

Record keeping also keeps all the transactions segregated for a business.

3. Transparency

sales account also helps to keep the transparency in the business transactions, which is useful and makes the business more ethical. Having transparent transactions not only helps business but also helps the customers to form a trust over the organization regarding the ethics it follows.

Making transactions transparent is useful for business during filing taxation and also if any discrepancy arises. Transparency is also helpful in calculating the profit of the organization for a particular period.

4. New leadership

A sales account is useful when the business is passed on from one leader to a different leader. Having a record of all the past transactions will help the new leader to study the organization and strategize in the future accordingly. If the sales account is right from the starting of the company, then a trend can be studied and plotted to know the growth rate of the business and historical analysis can help having a record of all the past transactions will help the new leader to study about the organization and strategize in the future accordingly.

The historical analysis can help to determine the future trend as well. These studies are usually performed by higher management, the board of directors, and leaders of the company who run it.

5. Expansion

sales account is crucial in the case of the expansion phase of the organization. The records of the organization have to be studied in order to understand the potential benefits and the effects that it will have on the organization and its employees.

To understand this, it is essential to have a sales account of the organization. This is also true in case of acquisitions and mergers in which both of the companies involved in the transaction are required to present the historical data for the basis of comparison.

Advantages

1. One of the most significant benefits of having a sales account is it can be used to keep the register of all the transactions happening at the business. It acts as a record-keeping ledger.
2. Having a Sales account makes the business proper and orderly. Having written all the transactions will ensure that up-to-date data is present with the Business and can be reproduced whenever asked by relevant authorities.
3. A sales account increases transparency. And thereby increases the trust of the shareholders as well as the internal stakeholders of the business.
4. Sales account is also used for the transaction in business, as well as to monitor and track the growth of the business over some time.
5. Having a sales account can help new people in your organization to understand the growth pattern, which will help them to know about the organization in a better way.

Disadvantages

1. To keep the record of every transaction may be possible in medium and small businesses but is not very easy in case of large businesses and multinational corporations. They require a lot of meticulous calculations and reports of every transaction in the company.
2. Any error in the past transactions has to be rectified by going way back in the ledger and rectifying it. sometimes me up at other transactions as well and to change all the transactions will not be an easy task for the business.
3. large businesses have to keep a sales account team separate in order to record and monitor every transaction that is happening in the business. Having a separate team will be an added cost to the business.
4. The possibility of human error significantly increases in the case of a manual sales account. Even if the sales account is kept computerized or automated, the data that is entered is manual and it still increases the risk or wrong data analysis and erroneous sales data.