Why Is Revenue Negative In Accounting

When Income or Revenues Accounts Increase, we credit these accounts and when these decrease, we debit these types of accounts as per Rules of Debit And Credit. The normal or usual balance of Revenues Accounts is credit which is closed to Income Summary Account at the end of the accounting period.

However there some cases in which we debit revenues which is unfavorable or unusual situation and in such situation, the revenue is called Negative Revenue. These cases are mentioned below:

1. Post Closing Entries

At the end of the accounting period, revenues are closed to Income Summary Account because revenues are Temporary Accounts which are ultimately recorded on Income Statement or Profit And Loss Account for the period. The Closing Entry to close Revenues is shown below:

                                                  Revenues a/c   XXX

                                                                       Income Summary a/c   XXX

                                                 (Revenues Closed To Income Summary Account)

2. In case of Revenues Received In Advance / Prepaid Income / Unearned Revenue

When the company received the payment from clients / customers but still the services or benefits are not provided to them at the end of the accounting period, then in such case, we record the following adjusting entry:

                                              Revenues a/c   XXX

                                                                 Unearned Revenue a/   XXX

                                             (Revenues Received In Advance for the Month)

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3. In case of Reclass Entry

When a correct amount is wrongly recorded and we need to record reclass entry by transferring the correct amount from incorrect account to correct account. For Example, if the account mistakenly treated fees expense account of Rs. 5000 as a fees received account rather than an fees paid expense account, then we pass the following reclass entry as shown below:

Wrong Entry

                                                  Cash a/c   XXX

                                                                Fees Received a/c   XXX

Reclass Entry

                                           Fees Received a/c   XXX

                                                  Fees Paid a/c   XXX

                                                                     Cash a/c   XXX