What is Income Or Revenue?

What is Revenue Account In Accounting

Here we will study about the Accounting Question that, “What is Income”?

Revenue / Income Definition

It is the price of goods sold or services rendered by the business to its customers. A business may receive Income in the form of Cash or Accounts Receivable / Debtor which is expected to be collected from customers in the form of Cash quickly in future within the Current Accounting Period.

Note: The Difference between Revenues And Expenses is Called Net Income / Net Profit of the Business for the period.

Income / Revenue Calculation

1. Revenues = Cash + Accounts Receivable

While According To Matching Principle GAAP, Net Income is calculated from the following formula:

Net Income / Profits = Revenues - Expenses

Income / Revenue Journal Entry

For Example, if the Furniture sold by the business For Rs. 500000, then the sales of Furniture is the income for the business and since it is purchased or produced by the business for the purpose of selling in the business, so it is a Sales for the business. Following Accounting Journal Entry is passed in the Book of Sales of the Business:

                                           Cash a/c 500000

                                                                         Sales a/c 500000

(Goods Sold For Cash Rs. 500000)

 You may also be interested in “What is Expense”

Revenue / Income is of two types / kinds:

1. Direct Revenues

2. Indirect Revenues

1. Direct Revenues

It is earned by the business from direct or main source of the business. It is related to the main business activity for which the business is actually existing and operating in the market place. For Example, A Business that produces and sells Furniture to its customers, then the selling of Furniture of is the main source of revenue for that Entrepreneur.

2. Indirect Revenues

The Revenue earned by the business other than the main source of the business. It does not belong to the main source of business activity but, actually, it relates to those business activities for which the business is not mainly existing and operating in the market place.

For Example, A Business main source of revenue is to sell Furniture, but the revenue received from supplier (Accounts Payable / Creditor) as a Discount Received is an Indirect Revenue because it is not the result of main source of revenue but rather than the supplier gives Discount Allowed to the business. Other Examples include Income Received From Obsolete Fixed Assets, Commission Received, etc.

Is Revenue An Asset?

No, as it is the price of goods sold or services rendered to the customers for selling purposes and not for using in the business while an Asset is the resource which is used and owned by the business and kept not for selling purpose while conducting business operations and activities. Assets are sold out or replaced due to obsolescence or due to the improved technology and such other reasons.

So, it is all about “What Does Income/ Revenue Mean in Accounting”.