Income and its Effect in Capital (Proprietorship)

Most of the time, when income is mentioned in accounting, it refers to the gross revenue the company generates.

Income increases a capital account. But, note that not all increases in capital account is an income account. Initial capital and additional contribution likewise increases the capital or equity.

Income increase a capital when such income is recognized as having been earned. See realization principle.

Though income increases capital account, the capital account should not be directly used or be credited when recording an income.  It is the proper revenue account which must be credited to record an income. So, for every type of revenue, a distinct account title must be assigned.  For examples, see  revenue elements.

Revenue Elements

Revenues are the gross earnings of the business as a result of selling goods and rendering services.

Examples of Revenue Elements

• Sales - refers to the revenue from sale of goods of a trade or merchandising business whether cash sales or sales on account.

• Service Income - refers to the earnings from rendering services by a servicing company whether cash and on account services.

• Professional Fees - refers to the earnings in rendering of services of professionals or professional servicing firms to their clients which could in cash or collectibles.

• Interest Income - refers to the earnings from the interest which derived from the promissory notes received by the organization whether in cash or collectible in the future.

• Rent Income - refers to the earnings from letting others use the properties or facilities of the entity.

• Gain on sale of other assets - refers to the earnings derived from selling the assets of the organization.  Gain on sale is when the proceeds of sale exceeds the book value of the asset being sold.  

Normal Balance : Credit

Revenue accounts have a normal credit balances. 

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