Income and expenses are the accounts contained in the Profit and Loss Statement. They are also known as nominal or short-term accounts because they are reported in a specific accounting duration. The accounting firm from Kota Kinabalu would finalize the balances at the end of the accounting year.
Revenue
In Accounting (Also see Challenges and Issues in Non-profit Accounting), revenue is income earned for providing services in the case of a service business. For a company that participates in selling goods, revenue is income originating from the sales of products to consumers.
It is important to note that in accounting, Sales (Also see What are the differences between Net Sales and Net Income?) or Service Income proceeds from typical business activities. Sales or Service Income does not come from other revenue-generating activities that are not part of the business’s everyday operations. As an example, a company that participated in buying and selling products like groceries sold off an old building it previously owned. The sale of the old building will not form part of the business’s sales.
If a company uses an accrual basis of accounting (Also see Impact of Inflation Accounting on Financial Statements), sales are recognized and recorded when the goods are delivered to the customer without receiving payment. In the case of service income, the revenues are recorded when the services are rendered to the customer.
Income or revenues have a normal credit balance so that when the income is earned and recognized, it is recorded as a credit to Sales and debit cash if the customer pays in cash. If the customer payment is on terms, accounts receivable is debited instead of cash.
Expenses
Expenses are costs incurred due to the business’s efforts to generate revenue and pay for its business operations. The cost of purchasing the product for sale is called the cost of sales. For a service business, the cost to render the service to the customer is known as service costs. Expenses (Also see What are Ordinary and Necessary Business Expenses?) are recorded as a debit to the corresponding account and credited to cash if paid in cash. The credit will be to a liability account if the payment is not yet paid in cash.