How to Find Credit Sales on Balance Sheet
It's never a bad thing for a company to know where its sales are coming from, and this includes calculating cash and credit sales. Calculating credit sales, using accounts receivable, isn't quite as simple, as adding up all of the receivables during a specific time frame. Other things, such as the age of the account and any discounts, have to be considered.
Tip
The formula for calculating credit sales is Total Sales, minus Sales Returns, minus Sales Allowances and minus Cash Sales.
Calculate the Total Sales for the Period
In the month of May, Company Z had cash sales of $80,000. The total amount in Accounts Receivables is $150,000, with $30,000 as the carryover from April's receivables. Since you only want to know about credit sales in the current period (May), you subtract the $30,000 from the total. This means that for the month of May, Company Z had sales totaling $200,000 ($80,000 + $120,000).
Subtract the Sales Returns
During the month of May, Company Z issued $10,000 in refunds, because several items were damaged during shipment and one item was the wrong size, so the customer could not use it. This amount would reduce the total number of cash sales, if the customer has already paid for the item or if the accounts receivable balance was from a credit customer. This reduces the total sales to $190,000 ($200,000 in total sales, minus $10,000 in returns).
Subtract the Sales Allowances
Sales allowances are basically discounts offered to customers for not requesting full refunds. For example, an item that had been shipped to a customer was the wrong color, but the customer stated that she was willing to keep the item, if the price could be adjusted. Company Z issued $5,000 in allowances in May. After this deduction, the total sales for May are $185,000 ($190,000 minus $5,000).
Subtract the Cash Sales
After figuring out the total number of sales for May and then subtracting the sales returns and allowances, the cash sales are deducted, since you are focusing on credit sales for the period. After deducting the $80,000 in cash sales, Company Z has $105,000 in credit sales.
Why This Is Helpful
Because Accounts Receivable are considered current assets, it's good to know how much potential income the receivables are worth. It is also a good way to determine the ratio of cash-to-credit customers. This figure is important for a company that is considering seeking outside financing.
It is also an excellent way to keep track of aging accounts. For example, the $30,000 of accounts receivables from April that are still on the books for May – if a company had aging receivables, it might be time to start pursuing payment in a more vigorous manner, provided the customer is not making timely payments on the amount due. Finally, if a company had a lot of account receivables, it might be worth considering offering discounts to customers who pay off their accounts in 30 days or less. For example, the company could offer a 2 percent discount, if the balance is settled in 20 days.
How to Find Credit Sales on Balance Sheet
Source: https://smallbusiness.chron.com/calculate-credit-sales-using-accounts-receivable-25323.html