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 ).
