A credit sale is one in which the company does not immediately receive cash. A customer buys a product or service on credit, that is, he pays for it after a given time period.
Companies usually have a very high amount of credit sales if their credit sale policy is not very strict or subject to constraints.
Example Net Credit Sales
An example of credit sale is simply the credit card. The amount of money present inside the credit card does not belong to the cardholder.
Rather, it is the bank’s money that is used by the cardholder on credit. The customer uses the amount for a given time period, weekly or monthly and then pay off. When a customer has a credit card, he uses it to pay for things but he not directly being charged for it. His bank is being charged for it.
In this situation, the bank momentarily pays for the transaction, however, the customer is in debt to his bank for the amount. This is an example of a credit sale.
In this example, you can find out receivable turnover ratio using “NET Credit Sales�? the value $3,036,000 is already known through journal entries.
A credit sale is similar in many ways. A customer takes an item or service from a business and does not pay immediately.
- At a later time, however, the customer is bound to pay, and this is a credit sale.
- Net credit sales can calculate by the following formula,
- Sales on credit – Sales returns – Sales allowances = Net credit sales
- Most companies have the highest amount of credit sales as a general trend.
You can also easily calculate this value after minus all sales return, credit sales and allowance in company gross sales.