What would interest income be with in an accounting class asset liability equity revenue or an expense account
The correct answer and explanation is:
The correct answer is revenue.
Interest income represents the earnings generated from lending money or from investing in financial instruments, such as bonds or savings accounts. It is classified as revenue because it increases a company’s income, just like sales or service revenue. In accounting, revenue accounts reflect the inflows of economic benefits that result from ordinary business activities.
Interest income is typically recorded on the income statement, which is used to assess the profitability of a business over a specific period. It reflects the earnings from assets held by the company, such as cash or investments. For example, if a business has a savings account or a loan, it will earn interest on those amounts. These interest earnings are considered revenue since they arise from the business’s financial activities, even if they are not directly linked to its primary operations.
When interest income is earned, it increases the revenue section of the income statement and contributes to net income. This income is also subject to taxation, depending on the jurisdiction. From an accounting perspective, it is important to distinguish between different types of revenue. Interest income is considered “non-operating” revenue because it is not generated from the core business operations (like selling goods or services) but rather from financial activities.
Interest income is reported in the accounting period in which it is earned, not necessarily when it is received, adhering to the accrual basis of accounting. This means that even if the cash has not been received by the end of the period, the business must still recognize the income on its financial statements.
In summary, interest income is classified as a revenue account because it generates income for the company, which increases the overall equity by contributing to profits.