In
accounting
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
, revenue is the total amount of income generated by the sale of
goods and services
Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doctor ...
related to the primary operations of the
business
Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...
.
Commercial revenue may also be referred to as sales or as turnover. Some
companies
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...
receive revenue from
interest
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
,
royalties
A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset. Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset o ...
, or other
fees
A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup. Traditionally, professionals in the United Kingdom (and previously the Republic of Ireland) receive a fee in contra ...
.
[ This definition is based on IAS 18.] "Revenue" may refer to income in general, or it may refer to the amount, in a
monetary unit
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general def ...
, earned during a period of time, as in "Last year, Company X had revenue of $42 million".
Profits or
net income
In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...
generally imply total revenue minus total expenses in a given period. In
accounting
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
, in the balance statement, revenue is a subsection of the Equity section and revenue increases equity, it is often referred to as the "top line" due to its position on the
income statement
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
at the very top. This is to be contrasted with the "bottom line" which denotes net income (gross revenues minus total expenses).
In general usage, revenue is the total amount of income by the sale of goods or services related to the company's operations.
Sales revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
is income received from selling goods or services over a period of time.
Tax revenue
Tax revenue is the income that is collected by governments through taxation. Taxation is the primary source of government revenue. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural resou ...
is income that a government receives from taxpayers.
Fundraising
Fundraising or fund-raising is the process of seeking and gathering voluntary financial contributions by engaging individuals, businesses, charitable foundations, or governmental agencies. Although fundraising typically refers to efforts to gathe ...
revenue is income received by a
charity
Charity may refer to:
Giving
* Charitable organization or charity, a non-profit organization whose primary objectives are philanthropy and social well-being of persons
* Charity (practice), the practice of being benevolent, giving and sharing
* Ch ...
from donors etc. to further its social purposes.
In more formal usage, revenue is a calculation or estimation of periodic income based on a particular
standard accounting practice
Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...
or the rules established by a government or government agency. Two common
accounting methods
A basis of accounting is the time various financial transactions are recorded. The cash basis (EU VAT vocabulary ''cash accounting'') and the accrual basis are the two primary methods of tracking income and expenses in accounting.
Both can ...
,
cash basis accounting
A basis of accounting is the time various financial transactions are recorded. The cash basis (EU VAT vocabulary ''cash accounting'') and the accrual basis are the two primary methods of tracking income and expenses in accounting.
Both can ...
and
accrual basis accounting
Accrual (''accumulation'') of something is, in finance, the adding together of interest or different investments over a period of time.
Accruals in accounting
For example, a company delivers a product to a customer who will pay for it 30 days ...
, do not use the same process for measuring revenue. Corporations that offer shares for sale to the public are usually required by law to report revenue based on
generally accepted accounting principles
Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...
or on
International Financial Reporting Standards
International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's f ...
.
In a
double-entry bookkeeping system
Double-entry bookkeeping, also known as double-entry accounting, is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. Every entry to an account requires a corresponding and opposite entry t ...
, revenue accounts are
general ledger accounts that are summarized periodically under the heading "Revenue" or "Revenues" on an
income statement
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
. Revenue account-names describe the type of revenue, such as "Repair service revenue", "Rent revenue earned" or "Sales".
Non-profit organizations
For
non-profit organization
A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...
s, revenue may be referred to as gross receipts, support, contributions, etc. This operating revenue can include donations from individuals and corporations, support from government agencies, income from activities related to the organization's
mission
Mission (from Latin ''missio'' "the act of sending out") may refer to:
Organised activities Religion
*Christian mission, an organized effort to spread Christianity
*Mission (LDS Church), an administrative area of The Church of Jesus Christ of ...
, income from fundraising activities, and membership dues. Revenue (income and gains) from investments may be categorized as "operating" or "non-operating"—but for many non-profits must (simultaneously) be categorized by
fund Fund may refer to:
* Funding is the act of providing resources, usually in form of money, or other values such as effort or time, for a project, a person, a business, or any other private or public institution
** The process of soliciting and gathe ...
(along with other accounts).
Association dues revenue
For non-profits with substantial revenue from the dues of their voluntary members: non-dues revenue is revenue generated through means besides association membership fees. This revenue can be found through means of
sponsorships
Sponsoring something (or someone) is the act of supporting an event, activity, person, or organization financially or through the provision of products or services. The individual or group that provides the support, similar to a benefactor, is k ...
,
donations
A donation is a gift for charity, humanitarian aid, or to benefit a cause. A donation may take various forms, including money, alms, services, or goods such as clothing, toy
A toy or plaything is an object that is used primarily to provid ...
or outsourcing the association's
digital media
Digital media is any communication media that operate in conjunction with various encoded machine-readable data formats. Digital media can be created, viewed, distributed, modified, listened to, and preserved on a digital electronics device. ' ...
outlets.
Business revenue
Business revenue is money income from activities that are ordinary for a particular corporation, company, partnership, or sole-proprietorship. For some businesses, such as
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a r ...
or
grocery
A grocery store ( AE), grocery shop ( BE) or simply grocery is a store that primarily retails a general range of food products, which may be fresh or packaged. In everyday U.S. usage, however, "grocery store" is a synonym for supermarket, an ...
, most revenue is from the sale of goods. Service businesses such as
law firm
A law firm is a business entity formed by one or more lawyers to engage in the practice of law. The primary service rendered by a law firm is to advise clients (individuals or corporations) about their legal rights and responsibilities, and to r ...
s and
barber shops receive most of their revenue from rendering services. Lending businesses such as
car rental
A car rental, hire car or car hire agency is a company that rents automobiles for short periods of time to the public, generally ranging from a few hours to a few weeks. It is often organized with numerous local branches (which allow a user to ...
s and
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s receive most of their revenue from fees and interest generated by lending
asset
In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
s to other organizations or individuals.
Revenues from a business's primary activities are reported as sales, sales revenue or
net sales
In bookkeeping, accounting, and financial accounting, net sales are operating revenues earned by a company for selling its products or rendering its services. Also referred to as revenue, they are reported directly on the income statement as ''Sal ...
.
This includes product returns and discounts for early payment of
invoice
An invoice, bill or tab is a commerce, commercial document issued by a sales, seller to a buyer relating to a sale transaction and indicating the product (business), products, quantities, and agreed-upon prices for products or Service (economic ...
s. Most businesses also have revenue that is incidental to the business's primary activities, such as interest earned on deposits in a
demand account
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the ...
. This is included in revenue but not included in net sales. Sales revenue does not include
sales tax
A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase. When a tax on goods or services is paid to a govern ...
collected by the business.
Other revenue (a.k.a. non-operating revenue) is revenue from peripheral (non-core) operations. For example, a company that manufactures and sells automobiles would record the revenue from the sale of an automobile as "regular" revenue. If that same company also rented a portion of one of its buildings, it would record that revenue as “other revenue” and disclose it separately on its income statement to show that it is from something other than its core operations. The combination of all the revenue-generating systems of a business is called its
revenue model A revenue model is a framework for generating financial income. It identifies which revenue source to pursue, what value to offer, how to price the value, and who pays for the value.Afuah, A. 2004. ''Business Models: A Strategic Management Approach ...
.
Accounting terms
:
Net sales
In bookkeeping, accounting, and financial accounting, net sales are operating revenues earned by a company for selling its products or rendering its services. Also referred to as revenue, they are reported directly on the income statement as ''Sal ...
=
gross sales
In bookkeeping, accounting, and financial accounting, net sales are operating revenues earned by a company for selling its products or rendering its services. Also referred to as revenue, they are reported directly on the income statement as ''Sal ...
– (customer discounts, returns, and allowances)
:
Gross profit =
net sales
In bookkeeping, accounting, and financial accounting, net sales are operating revenues earned by a company for selling its products or rendering its services. Also referred to as revenue, they are reported directly on the income statement as ''Sal ...
–
cost of goods sold
Cost of goods sold (COGS) is the carrying value of goods sold during a particular period.
Costs are associated with particular goods using one of the several formulas, including specific identification, first-in first-out (FIFO), or average cost ...
:
Operating profit
In accounting and finance, earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses (operating and non-operating) except interest expenses and income tax expenses.
Operating income and op ...
=
gross profit – total
operating expense
An operating expense, operating expenditure, operational expense, operational expenditure or opex is an ongoing cost for running a product, business, or system . Its counterpart, a capital expenditure (capex), is the cost of developing or provid ...
s
:
Net profit
In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...
=
operating profit
In accounting and finance, earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses (operating and non-operating) except interest expenses and income tax expenses.
Operating income and op ...
– taxes – interest
:
Net profit
In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...
=
net sales
In bookkeeping, accounting, and financial accounting, net sales are operating revenues earned by a company for selling its products or rendering its services. Also referred to as revenue, they are reported directly on the income statement as ''Sal ...
–
cost of goods sold
Cost of goods sold (COGS) is the carrying value of goods sold during a particular period.
Costs are associated with particular goods using one of the several formulas, including specific identification, first-in first-out (FIFO), or average cost ...
–
operating expense
An operating expense, operating expenditure, operational expense, operational expenditure or opex is an ongoing cost for running a product, business, or system . Its counterpart, a capital expenditure (capex), is the cost of developing or provid ...
– taxes – interest
:
EBIT EBIT, Ebit or ebit may refer to:
*EBIT, or Earnings before interest and taxes, in finance
*EBIT, or Electron beam ion trap, in physics
*An ebit (quantum state), a two-party quantum state with quantum entanglement
Quantum entanglement is the ph ...
=
net profit
In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...
+ taxes + interest
:
EBITDA
A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, pronounced , , or ) is a measure of a company's profitability of the operating business only, thus before any effects of indebtedness, stat ...
=
net profit
In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...
+ taxes + interest + depreciation + amortization
Accounting
While the current IFRS conceptual framework no longer draws a distinction between revenue and gains, it continues to be drawn at the standard and reporting levels. For example, IFRS 9.5.7.1 states: "A gain or loss on a financial asset or financial liability that is measured at fair value shall be recognised in profit or loss ..." while the IASB defined IFRS XBRL taxonomy includes OtherGainsLosses, GainsLossesOnNetMonetaryPosition and similar items.
Financial statement analysis
Revenue is a crucial part of financial statement analysis. The company's performance is measured to the extent to which its asset inflows (revenues) compare with its asset outflows (
expenses
An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is a ...
).
Net income
In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...
is the result of this equation, but revenue typically enjoys equal attention during a standard
earnings call An earnings call is a teleconference, or webcast, in which a public company discusses the financial results of a reporting period ("earnings guidance"). The name comes from earnings per share (EPS), the bottom line number in the income statement div ...
. If a company displays solid “top-line growth”, analysts could view the period's performance as positive even if earnings growth, or “bottom-line growth” is stagnant. Conversely, high net income growth would be tainted if a company failed to produce significant revenue growth. Consistent revenue growth, if accompanied by net income growth, contributes to the value of an enterprise and therefore the
share price.
Revenue is used as an indication of earnings quality. There are several
financial ratios
A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial ...
attached to it:
*The most important being
gross margin
Gross margin is the difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (e. g. production ...
and
profit margin
Profit margin is a measure of profitability. It is calculated by finding the profit as a percentage of the revenue.
\text = =
There are 3 types of profit margins: gross profit margin, operating profit margin and net profit margin.
* Gross Prof ...
; also, companies use revenue to determine
bad debt expense using the income statement method.
*Price / Sales is sometimes used as a substitute for a
Price to earnings ratio
A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the c ...
when earnings are negative and the P/E is meaningless. Though a company may have negative earnings, it almost always has positive revenue.
*
Gross Margin
Gross margin is the difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (e. g. production ...
is a calculation of revenue less
cost of goods sold
Cost of goods sold (COGS) is the carrying value of goods sold during a particular period.
Costs are associated with particular goods using one of the several formulas, including specific identification, first-in first-out (FIFO), or average cost ...
, and is used to determine how well sales cover direct variable costs relating to the production of goods.
*Net income/sales, or
profit margin
Profit margin is a measure of profitability. It is calculated by finding the profit as a percentage of the revenue.
\text = =
There are 3 types of profit margins: gross profit margin, operating profit margin and net profit margin.
* Gross Prof ...
, is calculated by investors to determine how efficiently a company turns revenues into profits.
Government revenue
Government revenue includes all amounts of money (i.e., taxes and fees) received from sources outside the government entity. Large governments usually have an
agency
Agency may refer to:
Organizations
* Institution, governmental or others
** Advertising agency or marketing agency, a service business dedicated to creating, planning and handling advertising for its clients
** Employment agency, a business that ...
or
department
Department may refer to:
* Departmentalization, division of a larger organization into parts with specific responsibility
Government and military
*Department (administrative division), a geographical and administrative division within a country, ...
responsible for collecting government revenue from companies and individuals.
HM Revenue & Customs (United Kingdom)Office of the Revenue Commissioners (Ireland)
[http://dor.mo.gov/ Missouri Department of Revenue
Louisiana Department of Revenue
Government revenue may also include reserve bank currency which is printed. This is recorded as an advance to the retail bank together with a corresponding currency in circulation expense entry, that is, the income derived from the Official Cash rate payable by the retail banks for instruments such as 90-day bills. There is a question as to whether using generic business-based accounting standards can give a fair and accurate picture of government accounts, in that with a monetary policy statement to the reserve bank directing a positive inflation rate, the expense provision for the return of currency to the reserve bank is largely symbolic, such that to totally cancel the currency in circulation provision, all currency would have to be returned to the reserve bank and canceled.
See also
* List of companies by revenue
This list comprises the world's largest companies by consolidated revenue, according to the ''Fortune'' Global 500 2022 rankings. American retail corporation Walmart has been the world's largest company by revenue since 2014.
The list is limite ...
* Legal tender#Demonetization
* Proceeds of crime
Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
References
External links
*
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