Accounting – The 4 Primary Income Statement Accounts
An income statement is a financial statement that reports your business’s income over a given period. There are four income statement accounts which include the operating revenue account, operating expenses account, other revenues and gains account, and other expenses and losses account.
Keep in mind that at the end of your business’s accounting period, the balances in these accounts will not be carried forward to the next accounting period. Instead, you will transfer the amounts in the income statement accounts to the owner’s capital account (for sole proprietorship) or retained earnings (for a company).
Operating revenue account
Operating revenue is the amount that your business earns from its major activities. Some of the accounts used for recording operating revenue include sales account, services revenue account, fees earned account, and more.
Note that revenue accounts have credit balances. However, contra revenue accounts such as allowances and sales discount accounts as well as the sales returns account have debit balances. Under the accrual method of accounting, you should record the revenue as of the date the product was sold.
Operating expenses account
Operating expenses are the expenses that your business is likely to incur in the process of generating operating revenue. For example, marketing expenses is an operating expense. You may need to keep various operating expenses accounts such as cost of goods sold, salaries expense account, rent expense account, utilities expense account, and more.
Under the accrual basis of accounting, you should report the expenses and their related revenues in the same accounting period. You should organize your business expenses according to functions such as selling, manufacturing, and general administrative expenses. The operating expense accounts must show debit balances.
Non-operating revenues and gains accounts
These are the revenues earned outside your primary business activities. For example, as a retailer, your cash at the bank can earn interest, and this is part of other revenues.
This account has a credit balance as it increases the shareholders’ equity.
Non-operating expenses and losses account
The expenses that your business incurs for it to earn the non-operating revenues and gains are recorded in this account. For example, for a retailer, an interest expense is a non-operating expense.
These accounts show a debit balance as they tend to decrease the shareholders’ equity.
Note that you will need the balances of every income statement account to prepare other financial statements. Besides, you can use these accounts to track your business expenses and find a way of reducing the expenses to maximize profits. This could be one of the benefit you can get by engaging an accounting service in Singapore since the experts are ready to give you a hand in your venture.