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The revenue of a business is the income that is received from its normal business activities of selling goods or providing services to customers. As the revenues are earned from the main activity of the business, they are referred to as operating revenues. Revenues, earned by a retailer who purchases and sells goods or a manufacturer that produces products for sale, are known as sales revenue or sales. Revenues earned from rendering services such as consulting or engineering firms are referred to as fees earned. Other operating revenues include interests charged by the bank or rents received by landlords.

The revenues not generated by a business’s primary activities, such as trading in goods or providing services, are known as non-operating revenues. These non-operating revenues gained from what are also referred to as secondary activities include interest earned by a trader or distributor on their investments, or rental received by a wholesaling business that lets out part of its warehouse. Other non-operating revenues include dividends and royalties.

Under the accrual basis of accounting, revenues are recognized as such at the time the goods are sold or delivered, or service given even if cash or payment is not received. Revenue accounts include Sales, Fees Earned, and Service Revenues. The following entries are posted to the relevant accounts.

Debit Cash account (Cash received at the time the goods are handed over or service given.), or

Debit Accounts Receivable account (Customer billed at the time the goods are handed over or service given, and will pay later.), or

Debit Unearned (Sales) Revenue (Customer has paid in advance for the goods or service.)

Credit Revenue account (At the time the customer is billed for the goods or service.)

Non-operating revenues are reported on the income statement or profit and loss account showing the period they are earned, and not the amount of cash received. They are disclosed separately from Sales, Sales Revenue, Fees Earned or Service Revenues. The revenues generated from the sale of goods or supply of service as shown on the financial statements must be after reduction of liabilities. These include returns inwards and discounts allowed.

Last Updated (Thursday, 14 October 2010 04:51)