Revenue accounts is a term used to designate those accounts that represent revenue receipts or revenue expenditures.
54. Revenue Receipts. The account representing revenue receipts in all lines of business (though it may sometimes be known by another name) is the sales account—a representative account showing net sales. Net sales, less cost of goods sold, represent gross profits. Gross profits, less cost of conducting the business (revenue expenditures) represent net profits.
55. Expense. The broad term expense account represents all revenue expenditures; but in modern bookkeeping the amounts of the different classes of expense are kept separate as far as possible.
Some of the most commonly used divisions of expense are: Rent; Insurance; Taxes, Interest and Discount; Out Freight and Express; Heat and Lights; Labor; Salaries, etc. It is customary to open one account in the name of General Expense, to care for expenditures not included in special accounts.
56. Insurance—A nominal account to which is charged all sums paid to insurance companies (called premiums), in consideration of which our property is insured against loss by fire, cyclones, or other disaster.
57. Rent—A nominal account to which is charged all sums paid for use of property which we rent or lease from others for the benefit of our business—usually the buildings in which our business is transacted or in which our goods are stored.
58. Taxes—A nominal account to which are charged all taxes and license fees paid on account of property owned or business transacted.
59. Interest—This is a nominal account which should include only interest charges paid or interest earned on account of capital. When we borrow money or discount a note, we do it because we need cash capital, and the interest paid is a capital expense or a direct source of loss. Exchange charged for the collection of notes and drafts belongs in the same class. All interest paid for the use of money, and exchange paid for the collection of notes, drafts, and checks, should be debited to interest account. When we save the discount by prepayment of bills, the discount is earned by the use of capital. All such earnings are a direct source of profit and should be credited to interest account. Discount paid on notes is interest paid in advance, and should not be confused with discounts allowed to customers for the prompt payment of bills; the latter is a reduction in the price received for our goods, and reduces trading profits. This question is discussed under the head of Cash Discounts.
60. Out Freight and Express—A nominal account which is debited with all transportation charges paid on goods that we ship, whether sales are made at delivered prices or freight is paid as an accommodation to the customer. When goods are sold at f. o. b. prices, and the freight is paid by us as an accommodation to the customer, out freight should be credited and the customer debited.