Accounting Online Program Certification Practice Test

During the month, Violet made credit sales totaling £6,780. How is this amount classified?

1. Revenue

2. Asset

3. Expense

4. Liability

The correct answer is: Revenue

The amount of £6,780 from credit sales is classified as revenue because it represents income earned by Violet from selling goods or services on credit during that month. Revenue is fundamentally the financial return a company receives from its business activities, which can significantly impact its profitability. In accounting, revenue is recognized when it is earned, regardless of whether payment has been received. In this case, even though the sales were made on credit, they are still counted as revenue because Violet has fulfilled her obligation to provide goods or services to her customers. This classification is key in assessing the performance of a business and its financial health. Sales do not fall under assets, as this amount does not constitute an ownership claim or resource but rather income expected to be collected from customers in the future. It also doesn't qualify as an expense, which would represent costs incurred in generating revenue or operations. Lastly, it is not a liability since it does not reflect an obligation or debt that the company must repay, but rather it shows the earnings generated through business activities.