What a Sale Is, How It Works, Different Types & Ways to Pay

Sale

Investopedia / Yurle Villegas

What Is a Sale?

A sale is a transaction between two or more parties that involves the exchange of tangible or intangible goods, services, or assets for money. In some cases, assets other than cash are paid to a seller.

In the financial markets, a sale can also refer to an agreement that a buyer and seller make regarding a financial security, its price, and specific arrangements for its delivery.

Regardless of the context, a sale is essentially a contract between a seller of a particular good or service and a buyer who is willing to pay for that good or service.

Key Takeaways

  • A sale is a transaction between two or more parties in which goods or services are exchanged for money or other assets.
  • In the financial markets, a sale is an agreement between a buyer and seller involving the price of a security and its delivery for agreed-upon compensation.
  • An item or service transferred by one party to another without an exchange of payment is not considered to be a sale, but rather a gift or a donation.
  • Sales occur 24 hours a day, across the globe, in all kinds of industries and are a major part of the essential structure of commerce.
  • A sale can also refer to the reduction in the price of a product or service in an attempt to attract buyers.
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What Is a Sale?

How a Sale Works

A sale occurs when a seller of goods or services transfers ownership of, and title to, a good or service to a buyer in exchange for a specific amount of money or other specified assets. To complete a sale, both the buyer and the seller must agree to the specific terms of the transaction. These terms can include the price of the good to be sold, the quantity of the good, the method of delivery, and time of delivery.

Importantly, the good or service that is being offered must be available to exchange. The seller must have the legal authority to transfer the item or service to the buyer.

If one party transfers a good or service to another without receiving compensation in return, the transaction is more likely to be treated as a gift or a donation, particularly from an income tax perspective.

Every day, millions of people take part in countless sales transactions across the globe. This creates a constant flow of assets and forms the backbone of the world's economies.

Types of Sales

  • The sale of goods and services within a retail market is a common form of sales transaction. This type of sale might involve a neighborhood business such as a grocery store or a laundromat. It may take place at a big box store or movie theater.
  • Sales of investment products by financial services institutions are considered to involve more complex exchanges of value. They can take place online or at a bricks-and-mortar location.
  • A sale can also occur between individuals. For instance, at a yard sale.
  • Another example of a more complicated sales transaction involving items of great value is the purchase of a vehicle from a car dealership.
  • Sales can also be transacted between businesses. For example, a raw materials provider might sell available materials to a business that uses those raw materials to produce consumer goods.

To complete a sale, both the buyer and seller must be deemed competent. The good or service in question must be legally available to buy and the seller must have the authority to transfer the item to the buyer. Both parties must agree on the terms of the sale.

Ways to Pay

When people ask the question "What is a sale?" their inquiry may involve the ways to pay. In general, there are three main ways to make the payment of money required in a sales transaction.

  • An individual or business can take actual cash from a buyer at the time of a sales transaction. They then provide the product or service to the customer.
  • Buyers may be able to pay on credit. That means the buyer pays sometime after the sale is made. Usually in such cases, the product is still presented to the buyer at the time of the transaction.
  • Buyers may pay for a good or service in advance, before they've received the actual product or service. A magazine subscription is an example of paying in advance for a product or service.

Example of a Sale

When an individual purchases their first home, a sale occurs when the closing documents are signed, money exchanges hands, and the new owner gets the key.

However, there are various aspects to such a sale that lead up to that final, legal exchange of money for property, and beyond. These include the would-be buyer's initial contact with a realtor and meeting with a representative at a lending institution to obtain financing in the form of a mortgage.

Additional sales can extend from an initial sale process. For example, once a home loan is made to the buyer, the lending institution may then sell that loan to another individual as an investment. What's more, an investment manager could conduct sales by trading bundles of mortgages, called mortgage-backed securities, and other kinds of debt financing.

What Are the Basic Elements of a Sale?

The elements of a sale might involve the request by a consumer to buy an item of interest from a seller. The seller could provide information about the product to the buyer, including price, quality, any warranty, a return policy. The buyer and seller could then agree on the terms of the sale. At that point, the seller would indicate the total amount of money required for the purchase. The buyer would provide payment and then take possession of the item.

When Is a Sale Complete?

Normally, a sale is considered complete when the agreed-upon payment for an item is provided by a buyer and accepted by a seller, and the item is presented to the buyer.

Can a Sale Involve Something Other Than an Exchange of Goods?

Yes, a sale can also refer to the reduction in the price of particular goods or services by a seller in order to make those goods or services more attractive financially to potential buyers.

The Bottom Line

The Merriam-Webster dictionary defines a sale as the transfer of ownership of, and title to, property from one person to another for a price.

Millions of sales take place every day. The many types of sales transactions made support the financial health of consumers and businesses. Sales drive the well-being of economies and nations all over the world. They are the bedrock of successful commerce.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. "Topic No. 506 Charitable Contributions."

  2. Internal Revenue Service. "Gift Tax."

  3. Merriam-Webster. "Definition of sale."

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