Revenue

Written by Fmi.Online Monday November 14, 2022
Revenue, also called a sale, is an increase in equity related to the sale of a product or service that earned income. In other words, revenue is income earned by the company from its business activities. There are many different types of revenues including product sales, consulting fees and other services, rent, and even commission based fees. Any type of income that is earned from business operations is considered to be a revenue.

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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