The account Sales is credited because a corporation's sales of products will cause its stockholders' equity to increase. A sole proprietorship's sales will cause the owner's equity to increase.
The Sales account is used in order to keep a tally of the sales made during an accounting year. However, when the accounting year is completed, the credit balance will be moved via closing entries to the corporation's Retained Earnings account or to the sole proprietorship's Owner's Capital account.
Recall that asset accounts will likely have debit balances and the liability and stockholders' equity accounts will likely have credit balances. To confirm that crediting the Sales account is logical, think of a cash sale. The asset account Cash is debited and therefore the Sales account will have to be credited. Also the accounting equation will remain in balance because the asset Cash is increased with a debit, and through the closing entries an owner's or stockholders' equity account will be increased with a credit.
After working as an accountant, consultant, and university accounting instructor for more
than 25 years, Harold Averkamp formed AccountingCoach.com in 2003. His goal was to
share his knowledge and passion for teaching accounting and with people throughout the
world at a very low cost. Read More...