Revenue

What is revenue?

Fees earned from providing services and the amounts of merchandise sold is revenue. Under the accrual basis of accounting, revenues are recorded at the time of delivering the service or the merchandise, even if cash is not received at the time of delivery. Often the term income is used instead of revenues.

Examples of revenue accounts include : Sales, Service Revenues, Fees Earned, Interest, Interest Income. Revenue accounts are credited when services are performed/billed and therefore will usually have credit balances. At the time that a revenue account is credited, the account debited might be Cash, Accounts Receivable, or Unearned Revenue depending if cash was received at the time of the service, if the customer was billed at the time of the service and will pay later, or if the customer had paid in advance of the service being performed.

If the revenues earned are a main activity of the business, they are considered to be operating revenues. If the revenues come from a secondary activity, they are considered to be nonoperating revenues. For example, interest earned by a manufacturer on its investments is a non- operating revenue. Interest earned by a bank is considered to be part of operating revenues.

Is revenue a profit?

Revenue is often referred to as the top line because it sits at the top of the income statement. The revenue number is the income a company generates before any expenses are taken out.

For example, with a shoe retailer, the money it makes from selling shoes before accounting for any expenses is its revenue. If the company also has income from investments or a subsidiary company, that income is not considered revenue; it does not come from the sale of shoes. Additional income streams and various types of expenses are accounted for separately.

Profit

Also referred to as the bottom line, profit is referred to as net income on the income statement. There are variations of profit on the income statement that are used to analyze the performance of a company.  

However, there are other profit margins in between the top line (revenue) and bottom line (net profit); the term "profit" may emerge in the context of gross profit and operating profit. These are steps on the way to net profit.

Gross profit is revenue minus the cost of goods sold (COGS), which are the direct costs attributable to the production of the goods sold in a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good.

Operating profit is gross profit minus all other fixed and variable expenses associated with operating the business, such as rent, utilities, and payroll.

Understanding Profit and Revenue: Key Differences

When people talk about a company's profit, they often mean net income, which is the remaining amount after all expenses have been deducted. This is distinct from gross profit or operating profit. It's possible for a company to have significant revenue but still experience a net loss if its expenses exceed its income.

Revenue represents the total income generated from sales or services before any costs are subtracted, often referred to as the top line. Profit, on the other hand, is the bottom line on the income statement, reflecting what remains after all expenses, including cost of goods sold and operational costs, have been deducted.

For instance, gross profit is calculated by subtracting the cost of goods sold (COGS) from revenue, while operating profit is derived by subtracting operating expenses from gross profit. Finally, net profit, or net income, is what remains after all expenses have been accounted for, including taxes and interest.