As previously mentioned, income statement accounts form part of the general ledger accounts of a business. These accounts are composed of operating revenues, operating expenses, non-operating revenues and gains, and non-operating expenses and losses. Note that the balances on these accounts are closed at the end of an accounting year. If a corporation, the balances will be transferred to retained earnings. If a sole proprietorship, the balances will be transferred to the owner’s capital account. Income statement accounts are referred to as temporary accounts because each new accounting year begins with a zero balance.
Operating revenues are simply profits collected from day-to-day business. This may include sales or service revenues or collected fees. These accounts have credit balances, because operating revenues increase stockholders’ equity. If sales returns or allowances occur, these are referred to as contra revenue accounts and have debit balances.
Operating expenses are costs incurred in day-to-day business activities. Accounts include cost of goods sold, salaries, fringe benefits, rent, repairs, utilities, and depreciation of equipment, supplies, and buildings. Note that these accounts have debit balances. With the accrual method of bookkeeping, expenses and related revenues are reported in the same accounting period. Often, operating expenses are categorized based on which department has incurred the expense.
Non-operating revenues and gains are reaped outside of day-to-day business activities. Revenues can include accumulated interest, profits from investments, and received dividends. Gains include assets sold for profit. These accounts have credit balances, as stockholders’ equity increases.
Non-operating expenses are incurred outside of day-to-day business activities. Expenses are commonly incurred through interest expenses. Losses include assets sold for a loss or a loss in a lawsuit.
Operating revenues are simply profits collected from day-to-day business. This may include sales or service revenues or collected fees. These accounts have credit balances, because operating revenues increase stockholders’ equity. If sales returns or allowances occur, these are referred to as contra revenue accounts and have debit balances.
Operating expenses are costs incurred in day-to-day business activities. Accounts include cost of goods sold, salaries, fringe benefits, rent, repairs, utilities, and depreciation of equipment, supplies, and buildings. Note that these accounts have debit balances. With the accrual method of bookkeeping, expenses and related revenues are reported in the same accounting period. Often, operating expenses are categorized based on which department has incurred the expense.
Non-operating revenues and gains are reaped outside of day-to-day business activities. Revenues can include accumulated interest, profits from investments, and received dividends. Gains include assets sold for profit. These accounts have credit balances, as stockholders’ equity increases.
Non-operating expenses are incurred outside of day-to-day business activities. Expenses are commonly incurred through interest expenses. Losses include assets sold for a loss or a loss in a lawsuit.