How revenue affects the balance sheet

Revenue normally appears at the top of the income statement. However, it also has an impact on the balance sheet. If a company's payment terms are cash only, then revenue also creates a corresponding amount of cash on the balance sheet. If the payment terms allow credit to customers, then revenue creates a corresponding amount of accounts receivable on the balance sheet. Or, if a sale is being made in exchange for some other asset (which occurs in a barter transaction) then some other asset on the balance sheet might increase.

This increase in assets also creates an offsetting increase in the stockholders' equity part of the balance sheet, where retained earnings will increase. Thus, the impact of revenue on the balance sheet is an increase in an asset account and a matching increase in an equity account.

Related Courses

The Interpretation of Financial Statements