What are income accounts?
Definition of income accounts
Income accounts are categories within the business's books that show how much it has earned.
A debit to an income account reduces the amount the business has earned, and a credit to an income account means it has earned more.
Income accounts in double-entry bookkeeping
- Income accounts: what the business has earned
- Expense accounts: the business's day-to-day running costs
- Asset accounts: what the business owns
- Liability accounts: what the business owes
- Capital accounts: what is owed to or by the business owner.
How debits and credits work for different accounts
To increase the amount in your business accounts, you need to debit some accounts and credit others. What you do depends on the kind of account you’re dealing with:
- for an income account, you credit to increase it and debit to decrease it
- for an expense account, you debit to increase it, and credit to decrease it
- for an asset account, you debit to increase it and credit to decrease it
- for a liability account you credit to increase it and debit to decrease it
- for a capital account, you credit to increase it and debit to decrease it
Example of an income account
When you issue a sales invoice to a customer, that increases the amount you've earned in sales. That's a credit entry to the income account for sales.
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If you later have to issue a credit note to reduce or cancel that invoice, that would be a debit entry to the income account for sales, because the amount you've earned has reduced.
Where to find your income accounts
Income accounts appear on the business's profit and loss account.
Keeping track of your income accounts
FreeAgent is a powerful double-entry accounting engine which can generate reports, including profit and loss, whenever you or your accountant need to take a look.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.