Revenue Accounts

Previous Lesson: Expenses

Revenue is created by a transaction or event arising during the ordinary activities of the entity which causes an increase in the ownership interest. It is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent etc.

revenue accounts

All inflows of the business are called Revenue Accounts according to SFAC 6 as:

“Inflow from delivering or producing goods, rendering services or other activities that constitute the entity’s ongoing major or central operations” (Para. 78)

Revenue accounts are the amount of money that a company receives from its operating activities in a given period, mostly from sales of products and/or services to customers. It is not to be confused with the terms “profits” or “net income” which generally means total revenue less total expenses in a given period;

Profit = Revenue – Cost

Revenue = Cost + Profit or (Loss)

Revenues are the gross increase in owner’s equity resulting from business activities entered into for the purpose of earning income. Generally, revenues result from selling merchandise, performing services, renting property, and lending money. Revenues usually result in an increase in an asset.

Note: Revenue is calculated by multiplying the price at which goods or services are sold by the number of units sold.