Revenue – Definition & Overview
What Is Revenue?
Revenue is the total amount of income according to the sale of goods or services related to the company’s primary business. Income is the company’s total earnings, and the net is the company’s profit. Both revenue and net income help calculate the financial strength of a company. On the other hand, both of them are entirely different.
The terms revenue and sales are often used interchangeably. For companies, financial statements, balance sheets, income statements, and cash flow statements make up the company’s financial statements. Companies submit a quarterly or annual report depending on their financial statements. Revenues of a business can be derived both from its core business and from outside its core business. The sum of both is called income.
Difference Between Revenue, Earnings, and Income
Before deducting expenses, revenue is the amount of money a corporation makes. Earnings are the profit a company has earned, so earnings could be found after subtracting tax, expenditure, and also interest from total revenue. Earnings or loss is the bottom line on the statement of income.
The Importance of Revenue and Earnings
A company’s financial performance may appear to be based solely on revenue. When addressing a company’s future prospects, the management will usually promote the company’s expanding revenue. On the other hand, revenue does not provide a whole picture of a business’s financial health.
We must also examine the costs incurred by the organization in order to create income. The corporation will make a profit if its income exceeds its expenses. On the other hand, a corporation is operating at a loss if its expenses exceed its revenue. Even though a company’s financial filings show that revenues are increasing from quarter to quarter or year to year, the company may still be in financial danger.
What Are Gross Income, Profit, and Net Income?
Gross income refers to the total income earned by you or your business over a period of time. Net income represents the difference after deducting all expenses. The result is profit when a company subtracts its expenses from the total revenue that goes into its vault at the end of a given period.
Is Turnover a Revenue?
Revenue represents the income a company generates from the sale of goods or services. Turnover is an accounting term that refers to how quickly a company completes operations in its business process. The total value of goods and services sold by a company is called sales. Turnover shows the net sales made by the company. Turnover is the iteration cycle of a business’s inventory or assets.
Is Revenue the Same as Profit?
Revenu refers to the inflow of money that the business provides with the hope of making a profit. In other words, we are talking about all income and expense items. Profit is the difference between income and expense. If the company’s income is higher than its expenses, we can talk about profit.
How Revenue Is Classified
a) Gross revenue: Gross revenue means gross sales represent the total income that any business makes money with the sale of products or services. For example: Think about a company named “X.” sells a Lawnmower for $1000 anyway they bought it for $800, so the gross revenue is $200. Gross revenue is calculated on monthly and annual periods. It would be misleading to talk about a profit or loss without comparing the data for repetitive periods. Annual gross income refers to the total sales generated during a year.
b) Net Revenue: Net income is also called net sales. Net income is the result obtained by subtracting all expenses incurred in the production, purchase, or sale of the product from the income obtained after the sale of a product or service. For example, Company “Y” has sold ten tables for $100 each. However, 2 of the products sold are returned by the customer. The company also charged $50 for shipping these products. So after $1000 sales, $200 returns, and $50 shipping costs, the net income is $750.
Revenues of a business can be derived both from its core business and from outside its core business. The sum of both is called income. Revenues cause an increase in company capital. In short, in order to determine the total income of a company, we must calculate both the income of the businesses from the main activities and the income from the non-core activities together.
Although companies earn income from side activities, their main income items arise from their main activities, namely the sales of goods and services. For example, the main income of a hamburger shop is to sell hamburgers and beverages. However, this company can generate advertising revenue by hanging an advertisement of a car dealership on the entrance door of its store. But the company’s main activity and main income are selling hamburgers.
What are the types of income?
There are two types of income your business can receive: Operating & Non-operating
a) Operating income is the income you get from your business’s main activities, such as sales. If you have a landscaping company, your business’ operating income comes from your services. Or, if you own a cake shop, your business’ operating income comes from the sale of pies.
b) Non-operating income is money earned from a side activity unrelated to your business’s day-to-day operations, such as dividend income or profits from investments. Non-operating income is more inconsistent than operating income. You sell frequently, but you may not be able to make money from side activities consistently. Non-operating income is listed after operating income on the income statement.
Income Account Types
When you earn income, you must record it properly in your accounting books. There are several different types of income in accounting. A company can have both operating income and non-operating income accounts:
- Rent earn
- dividend income
- interest income
- Contra income (sales refund and sales discount)
a) Total Revenue: Total revenue is the sum of a seller’s revenue by selling goods or services to their customers. In short, it is the sum of the income obtained by the company from the sales of goods and services made in a certain period.
b) Average Revenue: It refers to the amount of money earned per unit. Average revenue is calculated by dividing total revenue by the number of products sold. In short, it is the revenue earned by the seller per item sold.
c) Marginal Revenue: Marginal revenue is an economic measure used to determine the revenue a business can generate from selling a single additional unit or other good. In short, it is the additional total revenue generated by increasing product sales by 1 unit.