Learn It
Revenue is the income a business earns from doing what it does — selling products, providing services, or renting out property. It is the top line of the profit and loss statement. Every business exists to earn revenue.
Here is the critical idea: money received is not automatically revenue. If a customer pays you before the work is done, you have cash but not revenue yet. If you complete work but have not been paid, you have revenue but not cash yet. The two can happen at the same time, or at different times.
As we saw in the Cash Basis vs. Accrual Basis lesson, accrual basis records revenue when it is earned. That is the standard we use here.
Cash Sales vs. Sales on Credit
Cash Sale
The customer pays at the time of the sale. You record a sales receipt. Cash goes up and revenue goes up at the same time. Simple and clean.
Sale on Credit
The customer receives the product or service now but pays later. You record an invoice. Revenue is recorded now, and the amount owed goes to Accounts Receivable until the customer pays. When the payment arrives, cash goes up and Accounts Receivable goes down — but revenue does not change again.
Invoices and Sales Receipts
An invoice is a document sent to a customer that says "you owe us this amount for this work." It lists what was sold, the price, the terms, and the due date. The invoice creates revenue and Accounts Receivable at the same time.
A sales receipt is used when payment is received at the time of sale. It records revenue and cash at the same time. There is no Accounts Receivable because there is nothing to collect later — the sale is already settled.
Customer Deposits and Unearned Revenue
Sometimes a customer pays before the work is done. A deposit, a retainer, or an advance payment. The cash is real, but the revenue is not earned yet. The business owes the customer either the work or a refund.
This is called unearned revenue or deferred revenue. It is a liability, not income. The business has an obligation to deliver something in the future. When the work is completed, the unearned revenue becomes real revenue.
Example: A landscaper receives a $500 deposit in March for a job in April. In March: Cash +$500, Unearned Revenue +$500. In April when the work is done: Unearned Revenue −$500, Revenue +$500. The cash arrived in March, but the revenue belongs to April.
Refunds, Discounts, and Credit Memos
Revenue is not always final. Sometimes a customer returns a product, cancels a service, or receives a price reduction. These reduce the revenue the business originally recorded.
Refund
Cash is returned to the customer. Revenue is reduced. If the original sale was $200 and the customer gets a $200 refund, net revenue from that sale is $0.
Discount
A reduction in the selling price. A $100 service with a 10% discount records $90 of revenue. The discount reduces revenue before it is ever fully recorded.
Credit Memo
A document that reduces what a customer owes — or gives them credit toward a future purchase. It reduces revenue and either reduces Accounts Receivable or creates a customer credit balance.
See It
Let's follow a landscaping business through five sales events in one month. Watch how each one affects Cash, Accounts Receivable, Revenue, and Unearned Revenue differently.
| Transaction | Cash | A/R | Revenue | Unearned |
|---|---|---|---|---|
| Cash sale $400 | +$400 | — | +$400 | — |
| Invoiced sale $1,200 | — | +$1,200 | +$1,200 | — |
| Payment on old invoice $600 | +$600 | −$600 | — | — |
| Customer deposit $300 | +$300 | — | — | +$300 |
| Refund issued $150 | −$150 | — | −$150 | — |
| Ending Balances | $1,150 | $600 | $1,450 | $300 |
Notice three things. First, the $600 payment on an old invoice did not change revenue — revenue was already recorded when the invoice was created. Second, the $300 deposit went to Unearned Revenue, not Revenue. Third, the refund reduced both cash and revenue. The business earned $1,450 of revenue, collected $1,150 of cash, and still has $600 owed by customers.
Do It
Now build the ending balances yourself. Read the five transactions and type the ending balance for each account. Start every account at $0 and work through all five events.
Do It — Build the Account Balances
Read each transaction below. Then type the ending balance for each account after all five transactions. Think about which account each event affects and whether it increases or decreases the balance. Start every account at $0.
Completed lawn service and received $400 cash
Completed landscape design and invoiced customer $1,200
Received $600 payment on last month's invoice
Received $300 customer deposit for work not yet started
Issued $150 refund for a cancelled service
Enter the ending balance for each account
Prove It
Answer each question, then read the explanation. There's no score — this is just to help the ideas stick.
Question 1
A customer pays $300 in advance for work that will be done next month. What should the bookkeeper record now?
Question 2
A business completes a $1,000 job and sends the customer an invoice. The customer will pay next month. What happens to revenue?
Question 3
A customer returns a product and the business issues a $200 credit memo. What is the effect?
Ready for more than a short exercise?
Short exercises help you understand one skill at a time. QBO Dojo practice clients let you apply bookkeeping skills across realistic business activity inside QuickBooks Online — including real invoices, payments, deposits, and refunds.
Explore QBO Dojo Practice ClientsKey Takeaways
- Revenue is income earned from selling products or services — not the same as cash received.
- Cash sales use a sales receipt. Credit sales use an invoice and create Accounts Receivable.
- Customer deposits are unearned revenue — a liability, not income — until the work is done.
- Receiving payment on an invoice does not create new revenue. Revenue was already recorded when the invoice was issued.
- Refunds and credit memos reduce revenue. Discounts reduce revenue before it is fully recorded.
- Money received is not automatically revenue. The timing depends on when the work is earned.