Today’s accounting method is a double-entry accrual system that uses debits and credits to represent financial transactions. The double-entry system is self-balancing, where the total debits and credits balance against each other.
Revenue accounts in the general ledger have a natural credit balance; normal transactions are entered on the right side of the T account. The offsetting debits are cash or accounts receivable accounts.
Debiting a revenue account will reduce the overall balance of the revenue account. Common debit entries for revenue include customer returns, sales discounts or fiscal revenue deferrals.
Revenue accounts include only the transactions that occur during the accounting period. If companies are on a fiscal period, they may adjust their books to a calendar period using revenue deferrals.
Posting numerous debits into revenue accounts may cause auditors to review a company’s revenue accounts for inappropriate transactions. Companies may try to lower their revenues by posting false debit transactions, easing their tax burden.
Generally Accepted Accounting Principles (GAAP) are the highest authority in U.S. accounting standards. All financial transactions must be recorded according to these principles, especially items related to sales and revenue.