# Is Revenue a Debit or Credit? Business Accounting 101

## Understanding the Equation

You may find it helpful to consider the accounting equation of: Assets = liabilities + owner’s equity Since assets are shown on the left side of the accounting equation, the account balance will go there, as well. Liabilities, on the other hand, are shown on the right side of the accounting equation, with their account balances located on the right side, also known as the “credit side.”

## Why Revenues Are Credited

### Debits and Credits

Both of these entries are necessary in order for your bookkeeping to balance out correctly. Debits serve to increase expense or asset accounts while reducing liability, equity, or revenue accounts. Credits are essentially the total opposite. When a transaction is recorded, all debit entries have to have a credit entry that corresponds with it while equaling the exact dollar amount. Now that you know that debit and credit bookkeeping entries have to balance out one another, let’s take a closer look at their differences. First, think about the accounting purposes of these entries and how every transaction has to be exchanged for something else that has the exact same value. Debit entries are designed to add a positive number to your journal, while credits add a negative number. You won’t see written pluses and minuses in the journal entries, so it’s important that you get familiar with this format. To help you remember this, a debit will always be positioned on the left side of an asset entry. Keep in mind that a debit serves to increase expense or asset accounts, while decreasing revenue, liability, or equity accounts. A credit will always be positioned on the right side of an asset entry. Whereas debits decrease revenue, liability, or equity, accounts, credits increase them while decreasing expense or asset accounts.

## How Are They Used?

To break it down in the simplest of terms, debits and credits serve as a way to record any and all transactions within your business’s chart of accounts. This is your company’s income and expenses. Let’s take a moment to look a little closer into the five major account types.

### Asset Account

Your company needs assets to successfully operate and stay in business. Without assets, you won’t be able to keep your doors open. So, what makes up assets in your asset accounts? Let’s explore some of its subgroups.

This can come from a variety of sources, but they all account for aspects of your company that are designed to make you money.

### Expense Account

Next up is expense accounts. These are monetary charges that are needed to ensure your business can successfully function each and every day. Some of the subgroups found within expense accounts include:

• Salaries
• Utilities
• Travel
• Rent

Just like your liabilities, your expenses must be kept close track of to ensure that your revenue is put to proper use. Without expenses properly and promptly paid, your company could suffer from consequences that affect your normal operations.

### Revenue Account

When your business makes a sale to a customer, either from a product you carry or a service that you provide, revenue is earned for your company. Additionally, revenue can be made from the interest that you receive from investments. Some of the subgroups found within revenue accounts include:

• Investment Income
• Service Revenue
• Interest Income
• Sales Revenue

Sales and services are going to be the most common ways that your company earns revenue. Seasoned business owners are always on the look-out for new ways to incorporate revenue building in their organization.

### Liability Account

Any fees that your business is required to pay are known as liabilities. These costs can vary from business to business and industry to industry. What line of work you are in can play a role in the type of liabilities that your company is responsible for. Some of the subgroups that can found within liability accounts include:

• Income Tax Payable
• Accounts Payable
• Loans Payable
• Bank Fees

It is imperative that you make doubly sure to keep up with your liabilities at all times. Without the services that these entities provide, the behind-the-scenes operations of your business will diminish quickly. Sure, you might be able to skate by on your own for a little bit, especially if you’re a smaller business. But soon, you will be met with more hassle than you can handle. With the right people in place, you can look forward to your operations running smoothly.

### Equity Account

And lastly, we have equity accounts. After liabilities have been paid, equity is the net that your business makes. This doesn’t include non-operational assets. Some of the subgroups found in equity accounts are:

• Available-for-sale securities
• Pension/retirement plans
• Derivative instruments
• Mutual funds
• Debt security
• Real estate
• Stocks
• Bonds

As you can see, this is the funding that your brand pulls in after its responsibilities are met and paid. It is important that you keep a tight grip on this income, as it can cause some serious imbalances within your books and record-keeping if it isn’t properly accounted for. While the same is true for all accounts, many first-time business owners make the mistake of improperly calculating and accounting for equity due to not covering liabilities correctly.