Explanation:
The revenue account is a temporary equity account that increases total equity in the company. This means that the revenue account has a credit balance and is closed at the end of each accounting cycle to a permanent or balance sheet account. This makes sense because the revenue account is supposed to record the income earned in the current period.It doesn't consist of a cumulative balance of all earnings in the company history. Thus, all prior period earnings must be removed from the account, so the balance only reflects the current year’s earnings. In a corporation, revenues are closed to the retained earnings; whereas, a partnership closes revenues to the partners’ capital accounts. In both cases the revenue account is closed to a permanent equity account on the balance sheet.In a nutshell:
- Revenue, often referred to as sales or the top line, is the money received from normal business operations.
- Operating income is revenue (from the sale of goods or services) less operating expenses.
- Non-operating income is infrequent or nonrecurring income derived from secondary sources (e.g., lawsuit proceeds).
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