Recording of Debits and Credits for Revenue or Income Accounts

Revenue accounts come from a company's income statement. A company's revenue usually includes income from both cash and credit sales. A company can also have investment income. Larger companies sometimes invest in other companies. Smaller firms invest excess cash in marketable securities which are short-term investments.

Debits are decreases in revenue accounts. Credits are ​increases in revenue accounts. Increases in revenue or income are recorded as credit on the left side of the ledger. Decreases in revenue or income accounts are recorded as debits on the right side of the ledger.

Let's look at a sample journal entry for a revenue transaction. A small business has $5,000 in cash sales on a given day. Here's how those sales -- revenue for the firm -- would be recorded:

Cash $5,000

Cash Sales Revenue $5,000

Sales revenue is posted as a credit. Increases in revenue accounts -- the cash sales -- are recorded as credits. Cash, an asset account, is debited for the same amount. An asset account is debited when there is an increase, as there is in this case.

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