Revenue Accounts

Updated on January 3, 2024

Revenue Accounts Definition

Revenue Accounts are those accounts that report the income of the business and therefore have credit balances. Examples include Revenue from Sales, Revenue from Rental incomes, Revenue from Interest income, etc.

Types of Revenue Accounts

There are various Operating & Non-Operating accounts such as:-

Types of Revenue Accounts

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For eg:
Source: Revenue Accounts (wallstreetmojo.com)

  1. Sales Account
  2. Interest Income Account
  3. Rent Income Account
  4. Dividend Income Account
  5. Professional Income Account

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Now let us discuss these accounts in details:-

#1 – Sales Account

Under this account, the Income from main activities known as Operating ActivitiesOperating ActivitiesOperating activities generate the majority of the company's cash flows since they are directly linked to the company's core business activities such as sales, distribution, and production.read more, is recorded. The various ratios such as Turnover ratioTurnover RatioTurnover Ratios are the efficiency ratios that measure how a business optimally utilizes its assets to generate sales from them. You can determine its formula as per the Turnover type, i.e., Inventory Turnover, Receivables Turnover, Capital Employed Turnover, Working Capital Turnover, Asset Turnover, & Accounts Payable Turnover. read more, Gross profit ratioGross Profit RatioThe gross profit ratio evaluates the proportion of the direct profit a company generates from its net sales. Here, the gross profit is the returns acquired after considering the cost of goods sold, trade discounts and sales returns for deduction from the total revenue.read more, and Net profit ratio is calculated, taking the figure of this account as the base amount for all the ratio calculations of any entity.

#2 – Rental Income Account

If a company has the main object of its business as renting activities, this rental income account would be called anOperating Income, also known as EBIT or Recurring Profit, is an important yardstick of profit measurement and reflects the operating performance of the business. It doesn’t take into consideration non-operating gains or losses suffered by businesses, the impact of financial leverage, and tax factors. It is calculated as the difference between Gross Profit and Operating Expenses of the business.read more Operating IncomeOperating IncomeOperating Income, also known as EBIT or Recurring Profit, is an important yardstick of profit measurement and reflects the operating performance of the business. It doesn’t take into consideration non-operating gains or losses suffered by businesses, the impact of financial leverage, and tax factors. It is calculated as the difference between Gross Profit and Operating Expenses of the business.read more Account/ Sales account. But if renting is not the primary activity of the business, then it would fall under the Non-Operating Revenue Accounts. Under this account, all the debits and credits only relate to income from rental activities.

#3 – Interest Income Account

Interest in Capital. Under this account, the Revenue earned by the entities from interest is recorded, such as Interest on Fixed Deposits, Interest on Income Tax Refund. These incomes are earned from the saving activities performed or undertaken by the entities during the year.

#4 – Dividend Income Account

This is another Non-Operating Revenue account, under which income earned from dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more is recorded. These are generally incomes earned on Investments in Indian Companies or Foreign Companies by the entities.

#5 – Professional Income Account

Under this, the Income from professional activities such as Commission Income, and Service Fees for Services provided, are recorded. This is also the Income from the main operations of the entity and is recorded under this head, therefore known as Operating RevenueOperating RevenueOperating revenue is defined as revenue earned by an individual, corporation, or organization from the core activities that they undertake on a regular basis. There are several methods to earn revenue, but operational revenue is earned by the core business activities that the organization undertakes in its daily operations.read more Account.

Examples of Revenue Accounts

Example #1

Amit owns a shop that deals in the trading of goods. He also provides repair service for a few of the goods he deals in. He also has income from Fixed Deposits made by him in the banks. The income of Amit from various activities he is involved in are Turnover from the trading activity of $ 450,000/-; Interest IncomeInterest IncomeInterest Income is the amount of revenue generated by interest-yielding investments like certificates of deposit, savings accounts, or other investments & it is reported in the Company’s income statement. read more of $ 8,000/-; Service Receipts of $ 150,000/-.

Prepare Revenue Account for the above question and draft a Profit & Loss Account to show these entries.

Solution 

Following are the Revenue Accounts of Amit:

Example 1
Revenue Accounts Example 1.1
Example 1.2
Revenue Accounts Example 1.3

Example 2

XYZ Inc. is a US Company. It has earned Revenues in FY 2018-19 from various sources which are as follows:

  1. Income from Sale of Television Sets $ 490,000
  2. Income from Sale of Music Systems $ 384,000
  3. Income from Sale of Mobile Phones $ 1,598,000
  4. Income from Interest on Fixed Deposits $ 64,000
  5. Income from Service of Repairs $ 506,000
  6. Income from Income-Tax Refunds $ 45,550
  7. Income from Sale of Old Furniture $ 850
  8. Income from Sale of Capital Assets $ 757,000
  9. Income from Sale of Investments $ 315,650
  10. Income from Dividend $ 167,850

You are required to prepare Revenue Accounts for all of the above Incomes earned by XYZ Inc.

Solution 

Following are the revenue accounts of XYZ Inc.:

Revenue Accounts Example 2
Example 2.1
Revenue Accounts Example 2.2
Example 2.3

Important Points

Various points must be kept in mind to pass entries in a Revenue Account. The main points are discussed below:-

This article is a guide to Revenue Accounts and their definition. Here we discuss types of revenue accounts with detailed explanations, examples, and importance. You can learn more about accounting from the following articles –

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