Sales, Stock and the Truth in Between
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Most of us don’t think twice about what happens in the accounting records when a sale is made. You issue an invoice, the system updates, and you move on. The software makes it feel quick and simple.
But behind that one transaction, your accounting system is doing something far more meaningful. It is capturing the full financial impact of that sale. Not just what you earned, but what it cost you to earn it. And when you understand this properly, your numbers start to tell a much clearer and more useful story.
A sale is never just a sale
When you sell a product on credit, the first thing the system does is record the sale itself. This is the part most people are familiar with and expect to see.
Debit Debtors
Credit Revenue
Credit VAT
This entry reflects three important things happening at once. Firstly, your business has earned income, which increases your revenue. Secondly, a portion of that sale belongs to SARS as VAT, which creates a liability. Thirdly, because the customer has not paid yet, the amount is recorded as a debtor.
At this point, many people feel the job is done. The sale is recorded, the numbers look correct, and the system has done its work.
But in reality, only half the story has been captured.
The part many people don’t see
At the same time as recording the sale, the system quietly processes a second entry in the background:
Debit Cost of Sales
Credit Inventory
This entry is easy to overlook because you do not physically see it happening when you raise an invoice. But it is just as important as the first entry.
What this entry does is move the product out of inventory and into an expense. In other words, the business no longer holds that item as stock. It has now been used to generate income, and its cost must be recognised.
Think of it this way. Before the sale, the item sits on your shelves as an asset. After the sale, it becomes part of the cost of doing business. That shift needs to be reflected in your accounting records, and this is exactly what the second journal achieves.
Why both entries are important
To truly understand your financial performance, you need both entries working together.
Revenue tells you how much you sold. It shows activity and growth. But it does not tell you whether those sales are actually beneficial to the business.
Cost of sales tells you what it cost to generate those sales. It reflects the resources that were used up in the process.
The difference between the two is your gross profit, and this is where real insight begins.
If cost of sales is too high, your profit shrinks, even if your sales look strong. If cost of sales is well controlled, your margins improve, and the business becomes more sustainable.
Without recognising cost of sales correctly, your financial statements give a distorted view. Inventory remains overstated, profit looks higher than it should be, and decisions are made on incomplete information.
A simple example
Let’s bring this to life with a simple example.
A business sells a product for R1 150, which includes VAT. The cost of that product in inventory is R600.
The system records the following:
Sale entry:
Debit Debtors R1 150
Credit Revenue R1 000
Credit VAT R150
Cost entry:
Debit Cost of Sales R600
Credit Inventory R600
Now we can see the full picture.
The business earned R1 000 in revenue. It used inventory worth R600 to make that sale. The result is a gross profit of R400.
That R400 is what is available to cover other expenses such as salaries, rent, and operating costs. Only after those are covered does the business start making a true profit.
If the cost entry was not recorded, the business would appear more profitable than it really is, and inventory would still reflect stock that no longer exists.
Why this matters
Understanding these entries changes how you read financial information.
Instead of only focusing on sales, you start asking better questions. Are the products priced correctly? Are costs increasing over time? Are certain products less profitable than others?
It also helps explain why profits may not grow even when sales increase. If the cost of goods rises at the same rate or faster than revenue, the business may see little to no improvement in its bottom line.
For businesses that rely heavily on inventory, this becomes even more important. Small errors in cost or stock levels can have a significant impact on reported profit.
A final thought
Modern accounting systems are designed to make life easier. They automate processes and reduce manual work. But that convenience can sometimes hide what is really happening behind the scenes.
Every sale has two sides. The income you earn and the cost you incur to earn it.
When you understand both sides, your numbers become more than just figures on a report. They become a tool to understand performance, make decisions, and run a better business.
CPD Session: Fix the Journal Adjustments That Break Your Numbers
You know the basics.
But it is the follow-up journals that cause the real problems.
Accruals not reversed
Prepayments not rolled forward
Depreciation going off track
And suddenly your numbers do not make sense.
This session shows you how to fix, adjust, and review journals properly without creating bigger issues.
📅 9 April 2026
⏰ 14:00
🎓 2 CPD Units
💰 Free CIBA Channel 2 & R230 VAT incl. everyone else
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