In accounting terms, revenue is the income made by a company from its primary operations, including trading, selling products, and providing services.<\/p>\n\n\n\n
However, since revenue causes the owner(s) equity to increase, which is a credit balance, it is recorded as a credit on a company\u2019s balance sheets.<\/p>\n\n\n\n
Below, we thoroughly explore this topic!<\/p>\n\n\n\n
The total income generated from the sale of goods and services<\/strong> is known as revenue in accounting. However, revenue should not be confused with net income (profits) since it encompasses every source of income and operating expenses.<\/strong><\/p>\n\n\n\n While revenue is recorded as the top line<\/strong> on a company\u2019s income statement, net income is placed at the bottom after eliminating the corresponding costs.<\/p>\n\n\n\n Also known as sales in company ledgers, gross revenue is reported on a quarterly, semiannual, and annual basis and should never be considered alone when determining the business’s health, as it must be analyzed alongside the expenses to get the actual profits.<\/p>\n\n\n\n Depending on the income source, accountants utilize several types of accounts to record different types of revenue, including operating income<\/strong> (from the sale of goods and services) and non-operating revenue accounts<\/strong> (infrequent and non-recurring income):<\/p>\n\n\n\n Note:<\/strong> All of these revenue streams are presented both separately and summed up on a company\u2019s balance sheets for a specific period.<\/p>\n\n\n\n Per the principles of double-entry accounting, every transaction must be recorded in both a debit (assets coming in) and a credit account (assets going out). For instance, since revenue increases the owner\u2019s equity<\/strong>, it is recorded as a credit in the revenue account. But, before closing the books, the same amount is also debited into the main bank account.<\/p>\n\n\n\n The standard accounting equation further demonstrates this balance:<\/p>\n\n\n\n Assets = Liabilities + Owner’s Equity<\/em><\/p>\n\n\n\n As you can see, once a business earns revenue, it will debit the corresponding asset account (on the left), but at the same time, it will have to credit a matching credit account (on the right) to retain the equation balance, and thus increase the owner\u2019s equity.<\/p>\n\n\n\n To illustrate the relationship between debit and credit accounts, consider a bakery providing goods worth $500, which results in a new entry for that sum in its cash account. However, to retain the balance of the ledger, that $500 must also be recorded in the corresponding revenue column, which increases the owner\u2019s equity by said amount.<\/p>\n\n\n\n However, suppose the bakery is offering a $100 discount on its $500 goodies. In that case, accountants also have to enter the discount in a so-called \u2018contra revenue\u2019 account with a debit balance, which results in a reduced total revenue of $400.<\/p>\n\n\n\n In accounting terms, revenue is the income made by a …<\/p>\nWhat Is a Revenue Account?<\/strong><\/h2>\n\n\n\n
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Why Is Revenue Credited Rather Than Debited?<\/strong><\/h2>\n\n\n\n
Crediting Revenue: Examples<\/strong><\/h2>\n\n\n\n
Key Takeaways:<\/strong><\/h2>\n\n\n\n
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