Key Definitions in Sales and Inventory Accounting

Core Terminology for Merchandising Operations

Parties and Inventory Management

Retailer

A business that sells goods directly to the final user, the customer.

Wholesaler

A business that sells goods to retailers.

Merchandise

Goods purchased specifically to be resold to customers.

Inventory

The items of merchandise a business currently has in stock.

Sales Transactions and Revenue Recognition

Sales

A revenue account used to record the amount of merchandise sold.

Sales on Account

The sale of merchandise where payment will be received at a later date (a credit sale).

Charge Customer

A customer to whom a sale on account is made.

Credit Cards

A card issued by a business containing a customer’s name and account number that facilitates the sale on account.

Sales Slip

A form that lists the details of a sale transaction.

Sales Tax

A tax levied by a city or state on the retail sale of goods and services.

Credit Terms

Terms that specify the time allowed for payment for a sale made on account.

Cash Receipt

The cash received by a business in a single transaction.

Cash Sale

A transaction in which the business receives full payment for the merchandise sold at the time of the sale.

Adjustments, Returns, and Discounts

Sales Return

Any merchandise returned by the customer for credit or a cash refund.

Sales Allowance

A price reduction granted to a customer for damaged goods that the customer chooses to keep.

Credit Memorandum

A form that lists the details of a sales return or sales allowance.

Cash Discount (Sales Discount)

The amount a customer can deduct from the total owed for purchased merchandise if payment is made within a certain time period. This is also referred to as a Sales Discount.

Accounting Ledgers and Controls

Subsidiary Ledger

A ledger containing detailed data that is summarized into a related controlling account in the general ledger.

Accounts Receivable Subsidiary Ledger

A separate ledger that contains individual accounts for each charge customer. The total balance of this ledger is summarized in the Accounts Receivable controlling account in the general ledger.

Controlling Account

An account in the general ledger that verifies the accuracy of the account balances in a subsidiary ledger. Its balance must equal the total of all account balances in the related subsidiary ledger.

Contra Account

An account whose balance is recorded as a decrease to its related account (e.g., Sales Returns and Allowances decreases Sales).