What is a Revenue Account?
Contents
- What is a Revenue Account?
- Types of Revenue Accounts –Examples
- Operating Revenues
- Non-operating Revenues or Other Income
Revenues are the assets earned by a company’s operations and business activities. In other words, revenues include the cash or receivables received by a company for the sale of its goods or services.
The revenue account is an equity account with a credit balance. This means that a credit in the revenue T-account increases the account balance. As shown in theexpanded accounting equation, revenues increase equity. Unlike other accounts, revenue accounts are rarely debited because revenues or income are usually only generated. Income is rarely taken away from a company.
The revenue account is only debited if goods are returned and sales are refunded. In this case, the recorded sale must be reversed because the original sale is canceled.
Types of Revenue Accounts –Examples
There are many different kinds of revenue accounts, but they all represent the same basic concepts: a company receives cash or a claim to cash for the sale or use of its assets. Revenues are typically separated into two different categories: operating revenues and non-operating revenues or other income.
Operating Revenues
Operating revenues are generated from a company’s main business activities. In other words, this is the area of activities that a company earns most of its income and chooses to operate. Microsoft’s operating revenue comes from software development and creation because it is a software company.
Here are some examples of operating revenues:
Sales– A sale is an exchange of goods for cash or a claim to cash. Sales are typically made bymanufacturers, wholesalers, and retailers when they sell their inventory to customers. For example, a clothing retailer would record the income from selling a shirt to a customer as a sale or a merchandise sale
Rents– Rental income is earned by a landlord for allowing tenants to reside in his or her building or land. The tenants often have to sign a rental contract that dictates the details of the rental payments. According to the accrual method of accounting, the landlord records rental income when it is earned – not paid.
Consulting Services– Consulting service or professional services include all income from providing a service to a customer or client. For example, a law firm records professional service revenues when it provides legal services for a client.
Non-operating Revenues or Other Income
Other income includes all revenues generated by a company outside of its normal operations. Usually non-operating revenues are only a fraction of operating revenues.
Here is an example of non-operating revenues:
Interest income– Interest income is the most common form of non-operating income because most businesses earn small amounts of interest from their savings and checking accounts. Interest income isn’t only limited to bank account interest. It can also include interest earned from accounts receivable or other contracts.
There are many more types of revenues, but this is the basic list. We will discuss more revenues in depth later in the accounting course. Right now let’s move on to talk about expense accounts.
FAQs
Revenue accounts are financial accounts that contain the receipts of the income or revenue that the individual or company receives through their business transactions. All income statements include revenue information, and it is a good indicator of how well the individual or business is doing on the commercial front.
How do you record revenue accounts? ›
To record revenue from the sale from goods or services, you would credit the revenue account. A credit to revenue increases the account, while a debit would decrease the account.
What is the basic accounting revenue? ›
Revenue is money brought into a company by its business activities. There are different ways to calculate revenue, depending on the accounting method employed. Accrual accounting will include sales made on credit as revenue for goods or services delivered to the customer.
How to get revenue in accounting? ›
A simple way to solve for revenue is by multiplying the number of sales and the sales price or average service price (Revenue = Sales x Average Price of Service or Sales Price). With that being said, not all revenues are equal.
Is cogs a revenue account? ›
Cost of Goods Sold (COGS) is the direct cost of a product to a distributor, manufacturer, or retailer. Sales revenue minus cost of goods sold is a business's gross profit. The cost of goods sold is considered an expense in accounting. COGS are listed on a financial report.
Are revenue accounts debit or credit? ›
Liabilities, revenues, and equity accounts have natural credit balances. If a debit is applied to any of these accounts, the account balance has decreased. For example, a debit to the accounts payable account in the balance sheet indicates a reduction of a liability.
Do revenue accounts go on balance sheet? ›
Retained earnings differ from revenue because they are reported on different financial statements. Retained earnings resides on the balance sheet in the form of residual value of the company, while revenue resides on the income statement.
What is the accrual entry for revenue? ›
Accrued revenue entry leads to cash receipts. Deferred revenue is the recognition of receipts and payments after the actual cash transaction. Deferred revenue is unearned revenue and hence is treated as a liability. Accrued revenue is treated as an asset in the form of Accounts Receivables.
What is GAAP in revenue? ›
GAAP is a combination of authoritative standards set by policy boards and the commonly accepted ways of recording and reporting accounting information. GAAP covers such topics as revenue recognition, balance sheet classification, and materiality.
What is the accounting rule for revenue? ›
Revenue recognition is an aspect of accrual accounting that stipulates when and how businesses “recognize” or record their revenue. The principle requires that businesses recognize revenue when it's earned (accrual accounting) rather than when payment is received (cash accounting).
The double entry has two equal and corresponding sides known as debit and credit. The left-hand side is debit and right-hand side is credit. For instance, recording a sale of $100 might require two entries: a debit of $100 to an account named “Cash” and a credit of $100 to an account named “Revenue.”
What is an example of a revenue in accounting? ›
The simple formula Sales x Price of the good or service can calculate gross revenue. For example, if Dave opens a lemonade stand and sells 20 glasses of lemonade at $2 each, his gross revenue would be 20 x $2= $40. Net Revenue: Takes into account the cost of producing the goods sold by the company.
What is a revenue account classified as? ›
Revenue Accounts are those accounts that report the income of the business and therefore have credit balances. Examples include Revenue from Sales, Revenue from Rental incomes, Revenue from Interest income, etc.
How to identify revenue accounts? ›
Understanding Revenue Accounts
These accounts encompass the inflow of funds from core activities, like sales and services. They provide a detailed record of earned income and aid in evaluating business performance. Revenue accounts help identify the sources of income, be it product sales, service fees, or interest.
Is a revenue account an expense? ›
Revenue: This is the money your business brings in during an accounting period. Revenue is often referred to as your “top line,” because it's the first item listed on a profit and loss statement. Expenses: The opposite of revenue, expenses are what your business spends money on.
