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    Wednesday
    Oct022013

    Revenue accounts

    Revenue is an increase in assets or decrease in liabilities that results from providing goods or services to customers. There are several accounts in which revenue transactions can be recorded, depending upon the nature of the underlying transactions. For example:

    • Service sales. This account is used by organizations that provide services to their customers, such as consulting services or tax advice. This type of revenue is typically billed on an hourly basis to customers, or is a fixed fee in exchange for services (such as a $100 flat fee to repair a washing machine).
    • Product sales. This account is used by companies that sell goods to their customers, such as automobiles or consumer electronics. This type of revenue is typically billed based on a flat fee per unit shipped.

    Revenue accounts may be subdivided in many ways. For example, service sales could be stored in separate accounts for each regional office of a consulting firm, and then aggregated into a single service sales line item for the entire company. Alternatively, product sales could be stored in separate accounts for each product, and then aggregated into a single product sales line item for the entire company.

    Revenues may also be earned from activities that do not relate directly to operations. These earnings are typically stored in separate accounts, such as:

    • Interest income
    • Dividend income
    • Rent income

    These non-operating revenue accounts may be stated lower in the income statement, to keep them from being confused with the main operating revenue accounts.

    In addition to the preceding list of major revenue accounts, there are also several associated contra revenue accounts. These accounts are designed to separately store deductions from revenue. The most common contra revenue accounts are:

    • Sales discounts. This account stores any discounts given to a customer in exchange for early payment.
    • Sales allowances. This account stores any discounts given to customers from the regular price of an invoice.
    • Sales returns. This account stores the reserve for returned products that are expected to be received from customers.

    The operating revenue accounts are paired with their associated contra revenue accounts to derive net sales, which is reported in the income statement.

    The amounts stored in these accounts should be recorded as of the dates when services are delivered or goods shipped (subject to more specific revenue recognition rules) under the accrual basis of accounting.

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