Tax & Business Services
Revenue
Understanding revenue and how it can affect a small business is one of the keys to financial success. This is because revenue is the dollar measure that represents an increase in the business's assets through the sale of its goods and services. In simple terms, revenue is typically the income derived from the sales of products or services. Gains from the sale of assets are not considered to be operating revenues. Operating revenues are the profits that come from the sales of goods or services.
Revenue vs. Expense vs. Cash Flow
It's hard sometimes to distinguish between revenue, expenses and cash flow. This is especially true if you're using the cash method of accounting, where many cash receipts may be mistaken for revenues and many cash disbursements may be improperly classified as expenses.
For example, the following cash receipts have no effect on the income statement and should not be accounted for as revenues:
Debits and Credits
To keep your accounting records straight, use a small business bookkeeping system of recording increases and decreases to the various accounts. The bookkeeper debits (subtracts from) or credits (adds to) an account to reflect a business transaction's effect on that account. The balance can be increased or decreased using debits and credits. The actual effect depends on the nature of the account.
Principle of Revenue Recognition
Revenue recognition is a principle of accounting says that revenue should be recorded ("booked") only when the transaction is complete. This small business bookkeeping method is similar to that of a cash-basis small business recording revenue only when the cash is actually received. However, if you're using the accrual method of accounting, you may have more difficulty in determining when a transaction is complete.
Understanding revenue and how it can affect a small business is one of the keys to financial success. This is because revenue is the dollar measure that represents an increase in the business's assets through the sale of its goods and services. In simple terms, revenue is typically the income derived from the sales of products or services. Gains from the sale of assets are not considered to be operating revenues. Operating revenues are the profits that come from the sales of goods or services.
Revenue vs. Expense vs. Cash Flow
It's hard sometimes to distinguish between revenue, expenses and cash flow. This is especially true if you're using the cash method of accounting, where many cash receipts may be mistaken for revenues and many cash disbursements may be improperly classified as expenses.
For example, the following cash receipts have no effect on the income statement and should not be accounted for as revenues:
- Proceeds from loans or lines-of-credit
- Cash received from accounts receivable items already recorded in revenue
- Loans or capital contributions from the owner(s)
- Cash received from the sale of assets that are not normally sold by the business as inventory
Debits and Credits
To keep your accounting records straight, use a small business bookkeeping system of recording increases and decreases to the various accounts. The bookkeeper debits (subtracts from) or credits (adds to) an account to reflect a business transaction's effect on that account. The balance can be increased or decreased using debits and credits. The actual effect depends on the nature of the account.
Principle of Revenue Recognition
Revenue recognition is a principle of accounting says that revenue should be recorded ("booked") only when the transaction is complete. This small business bookkeeping method is similar to that of a cash-basis small business recording revenue only when the cash is actually received. However, if you're using the accrual method of accounting, you may have more difficulty in determining when a transaction is complete.