Chapter 5 lesson 2 Recording Sales and Expenses

Sales transactions represent the income your business earns when you sell products or provide services. These transactions increase both your revenue and your assets, usually in the form of cash or accounts receivable. For example, if you make a cash sale of $1,000, you would record a debit to Cash for $1,000 and a credit to Sales Revenue for $1,000. If the sale is made on credit, meaning the customer will pay later, the entry would be a debit to Accounts Receivable for $1,000 and a credit to Sales Revenue for $1,000. In both situations, your sales revenue increases—but in one, your cash balance goes up right away, while in the other, it creates a receivable, showing that money is owed to you.

Expenses are the costs your business incurs during daily operations—such as rent, utilities, salaries, and office supplies. When you record an expense, you increase the appropriate expense account while either reducing an asset like cash or increasing a liability if the amount hasn’t been paid yet. For example, when you pay rent in cash, you record a debit to Rent Expense for $500 and a credit to Cash for $500. If you receive a bill for utilities but haven’t paid it yet, you would record a debit to Utilities Expense for $300 and a credit to Accounts Payable for $300. This entry reflects that you’ve used a service, such as electricity, but still owe the payment—which becomes a liability on your books.