What is a Revenue Account?
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 the expanded 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 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 by manufacturers, 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.