Definition of Credit Sales

As opposed to cash sales, credit sales (or sales on credit) allow the customer to pay the seller at a later date. Perhaps the seller allows its credit worthy customers to pay in 10 days, 15 days, 30 days, 60 days, etc.

At the time of the sale, the seller will debit Accounts Receivable and will credit Sales. When the seller receives payment from the customer, the seller will debit Cash and will credit Accounts Receivable.

Example of a Credit Sale

Assume that SellerCo delivers $5,000 of goods to a customer on December 30 and no further action is required by SellerCo. Under the accrual basis of accounting, SellerCo will report $5,000 in its income statement accounts Sales and will report $5,000 in its current asset account Accounts Receivable.

Assume that on January 31, SellerCo receives $5,000 from the customer. On this date SellerCo debits Cash for $5,000 and credits Accounts Receivable for $5,000.