What is the difference between expense and revenue accounts in accounting?

The production of goods and services entails effort for a company. The subsequent sale to customers represents revenue for the business. To clearly present the various business transactions, they are entered in the accounting in expense and income accounts, which each follow certain booking rules.

The income statement juxtaposes the expenses and income of a company. From this juxtaposition, one can determine whether the company is making a profit or a loss from its operational activities (see blog post).

To organize and clearly present the various expenditures and revenues that occur during a year, they are shown in the accounting in expense and income accounts. The recording of increases and decreases follows certain rules, depending on whether it is an expense or income account.

No uniform chart of accounts

A uniform chart of accounts does not exist because the income statement depends very much on the industry in which the company operates. Typical expense accounts for an industrial company include Personnel expenses, Raw materials, Heat and energy, and Rent. On the other hand, typical income accounts include income from the sale of products (manufactures), changes in inventories of semi-finished and finished products, and interest income.

The balance of the expense accounts then flows into the income statement on the expense side (left side) and the balance of the income accounts flows to the income side (right side) of the income statement. The difference between expense and income ultimately results in the profit, which can be either a gain or a loss.

Period accounting

Unlike the asset and liability accounts in the balance sheet, the expense and income accounts have no beginning balances. This follows from the concept of the income statement, which is a period accounting. The recording of expenses and income begins anew each period.

Expense reductions refer primarily to received discounts and cash discounts, but also VAT deductions granted are included. On the other hand, income reductions are discounts granted on one's own sales as well as cash discounts and returns of defective goods. The VAT, which must be delivered to the tax authorities, also counts as income reductions.

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