Revenue generated by a company is the total income generated by the sales of goods and services produced by a company. Revenue is also referred to as the “top line” because it comes first in the financial statement of the company. However, income is net profit generated after subtracting all expenses such as operational, administrative, taxes etc. from the total revenue generated by a company.
In this article, you will learn about revenue and income with the help of examples and key differences between both of them.
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What is Revenue?
The revenue is a total income earned by a company during a specific period together with all deductions and discounts for all returned goods. It is also called “top line” or “gross income figure”. Revenue is calculated by multiplying the total numbers of goods sold with the price of goods. It is the total earning of a company through its business activities. Revenue can be calculated in various ways.
The method used to calculate revenue depends on the accounting method employed by the company. In accrual accounting, earning made by selling goods and services on credit is also included if the goods and services are delivered to customers. in accrual accounting cash flow statements of the company is checked regularly to know whether the money owned is collected efficiently or not.
In another type of accounting known as cash accounting, only the payment received on the sold products is counted. Cash paid to the company is referred to as “receipt” to distinguish it from the revenue generated from the company. Receipts can be generated without the generation of revenue. For example, when a customer pays in advance for the services of a company to redeem it later. Such earning can’t be counted as revenue. Net income generated by a company is calculated by subtracting total expenses made by a company from the total revenue generated by the company. A company can increase its net income either by increasing its total revenue or by reducing its expenses.
A company’s financial health can be determined by looking at its revenue or net income generated by it. when expenses are reduced the net income of the company grows while revenue remains the same. However, this type of growth is not considered good for the long-term growth of the company. In the Quarterly financial statement of a company, two values one is total revenue and other is net income per share grab the most attention of investors. The revenue generated by a company can be subdivided as per the division that generated it.
Revenue can be generated through followings
i) By selling products, goods, or merchandise.
ii) By providing services.
iii) income generated by renting commercial properties.
iv) Interest earned by lending money.
v) Income from selling assets of a company.
Government generated revenue from taxes, Inter-governmental transfers or grants, fees or fines, investments, grants from government entities, membership fees, and fundraising activities etc.
What is Income?
Income generated by the company is calculated by subtracting the cost of goods produced, general operational and administrative expenses, selling cost, depreciation, taxes, interest, and other taxes form the total revenue generated by a company. The income generated by a company is also referred to as “net income” or “bottom line” as it is placed at the last of the financial statement generated by a company.
The number appeared on the income statement of a company is very important as it tells about the profitability of a company. Income can be used to calculate earnings per share. In the United Kingdom, Net income is used as profit attributable by the analysts for shareholders. Income of a company can be manipulated through aggressive revenue recognition or by hiding expenses made by the company.
Difference Between Income and Revenue
| Income | Revenue |
|---|---|
| Income is the total income generated by a company by the sales of goods and services produced by the company. | Revenue is total income generated by a company from different sources such as investments, sales of products and services, licenses etc. |
| Income generated by a company is calculated by subtracting total costs (such as operating costs and administrative costs) from the total revenue generated by the company. | The total revenue generated by a company is calculated by multiplying total numbers of products sold by the company with the price of the products. |
| Income generated by a company is placed at the bottom line of the financial statement of the company. | Revenue generated by a company is placed in the top line of the financial statement of the company. |
| Income is also referred to as the “bottom line” in the financial statement. | Revenue is also referred to as the “top line” in the financial statement. |
| Income generated by a company is sub-part of total revenue generated by a company. | Revenue is the overall income generated by a company. |
| Company ABC has generated $9 million as a total income at the end of the fiscal year 2018 with a total increase in a 5.8% increase in total income. | Company ABC has generated $15 million in total revenue at the end of the fiscal year 2018 with a total increase in a 7% increase in the total revenue. |
In conclusion, we can say that both, as well as revenue, are important terms in finance and business. most of the times their meanings are confused with each other. However, from the above discussion, it is apparent to us that these two terms can’t be used interchangeably because of the significant differences between both of them.
Revenue is total money earned by a company by doing various activities and income is total money left with the company after subtracting total expenses made by it from the total revenue generated. Income and revenue are two different terms for a company, but there is no difference between an income or revenue for the earning of an individual. The salary received by an individual is his revenue as well as income because most companies automatically deduct taxes and payment benefits from an individual’s salary.
