Revenue accounts definition
/What are Revenue Accounts?
Revenue accounts are designed to store different types of sales transactions. An organization can generate many kinds of revenue, so it makes sense to record them within different accounts. This is done in order to generate reports that aggregate revenue by type, for further management analysis. The accounts in which revenue transactions can be recorded depend upon the nature of the underlying transactions. Here are several examples of revenue accounts:
Service sales account. The service sales account is used by organizations that provide services to their customers, such as consulting services or tax advice. This type of revenue is typically billed on an hourly basis to customers, or is a fixed fee in exchange for services (such as a $100 flat fee to repair a washing machine).
Product sales account. The product sales account is used by companies that sell goods to their customers, such as automobiles or consumer electronics. This type of revenue is typically billed based on a flat fee per unit shipped.
Warranty contract sales account. If a business sells warranty contracts to customers alongside its product sales, it may very well want to track these sales separately, since they tend to have extremely high profit margins. Management will want to know how well it is doing in marketing these contracts to customers.
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Subdivisions of Revenue Accounts
Revenue accounts may be subdivided in many ways. For example, service sales could be stored in separate accounts for each regional office of a consulting firm, and then aggregated into a single service sales line item for the entire company. Alternatively, product sales could be stored in separate accounts for each product or geographic region, and then aggregated into a single product sales line item for the entire company.
Non-Operating Revenue Accounts
Revenues may also be earned from activities that do not relate directly to operations. These earnings are typically stored in separate accounts, such as interest income, dividend income, and rent income. These non-operating revenue accounts may be stated lower in the income statement, to keep them from being confused with the main operating revenue accounts. The amounts stored in these accounts should be recorded as of the dates when services are delivered or goods shipped (subject to more specific revenue recognition rules) under the accrual basis of accounting.
Contra Revenue Accounts
In addition to the preceding list of major revenue accounts, there are also several associated contra revenue accounts. These accounts are designed to separately store deductions from revenue. The most common contra revenue accounts are:
Sales discounts. This account stores any discounts given to a customer in exchange for early payment.
Sales allowances. This account stores any discounts given to customers from the regular price of an invoice.
Sales returns. This account stores the reserve for returned products that are expected to be received from customers.
The operating revenue accounts are paired with their associated contra revenue accounts to derive net sales, which is reported in the income statement.
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