Revenues (or income) refer to economic benefits received from business activities.
Revenues are “increases in economic benefits during the accounting period in the form of increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants”.
The following points can be drawn from the definition of revenue:
Increase in benefits during the accounting period. Income is measured from period to period, and provides economic benefits to the company.
Increase in assets or decrease in liabilities. The economic benefits mentioned above could be in the form of an increase in assets or a decrease in liabilities. When a company renders services or sells goods, it receives cash as payment; thereby increasing assets. It can also acquire a receivable if the sale was made on credit, or receive any other asset in place of cash. Also, an existing liability may be forgiven or cancelled in exchange for the company’s services.
Increase in equity, other than contributions from equity participants. There are only two elements that provide increases in equity: contributions from owners and revenues or income.
List of Revenue Accounts
1. Service Revenue – revenue earned from rendering services. Other account titles may be used depending on the industry of the business, such as Professional Fees for professional practice and Tuition Fees for schools.
2. Sales – revenue from selling goods to customers. It is the principal revenue account of merchandising and manufacturing companies.
Sales Discounts – a contra-revenue account that represents reduction in the amount paid by customers for early payment. It is shown in the income statement as a deduction to Sales.
Sales Returns and Allowances – also a contra-revenue account and therefore shown as a deduction to Sales. Sales return occurs when there is actual return of a defective item. Sales allowance happens when the customer is willing to keep the item with a reduction in its selling price.
3. Rent Income – earned from leasing out commercial spaces such as office space, stalls, booths, apartments, condominiums, etc.
4. Interest Income – revenue earned from lending money
5. Commission Income – earned by brokers and sales agents
6. Royalty Income – earned by the owner of a property, patent, or copyrighted work for allowing others to use such in generating revenue
7. Franchise Fee – earned by a franchisor in a franchise agreement
On the income statement, net income is computed by deducting all expenses from all revenues. Revenues are presented at the top part of the income statement, followed by the expenses.