In bookkeeping, revenues are credits because revenues cause owner’s equity or stockholders’ equity to increase.

Recall that the accounting equation, Assets = Liabilities + Owner’s Equity, must always be in balance. The asset accounts are expected to have debit balances, while the liability and owner’s equity accounts are expected to have credit balances. Therefore, when a company earns revenues, it will debit an asset account (such as Accounts Receivable) and will need to credit another account such as Service Revenues. The credit balance in Service Revenues will eventually be moved to the sole proprietor’s capital account or to a corporation’s Retained Earnings account (thereby increasing the credit balance in one of those owner’s or stockholders’ equity accounts).

Learn more about Debits and Credits.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.

Learn more about AccountingCoach Pro