The word revenue means

From Wikipedia, the free encyclopedia

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.^[1]
Commercial revenue may also be referred to as sales or as turnover. Some companies receive revenue from interest, royalties, or other fees.^[2] «Revenue» may refer to income in general, or it may refer to the amount, in a monetary unit, earned during a period of time, as in «Last year, Company X had revenue of $42 million». Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, revenue is a subsection of the Equity section of the balance statement, since it increases equity. It is often referred to as the «top line» due to its position at the very top of the income statement. This is to be contrasted with the «bottom line» which denotes net income (gross revenues minus total expenses).^[3]

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 is income received from selling goods or services over a period of time. Tax revenue is income that a government receives from taxpayers. Fundraising revenue is income received by a charity 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 or the rules established by a government or government agency. Two common accounting methods, cash basis accounting and accrual basis accounting, 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 or on International Financial Reporting Standards.

In a double-entry bookkeeping system, revenue accounts are general ledger accounts that are summarized periodically under the heading «Revenue» or «Revenues» on an income statement. Revenue account-names describe the type of revenue, such as «repair service revenue», «rent revenue earned» or «sales».^[4]

Non-profit organizations[edit]

For non-profit organizations, revenue may be referred to as gross receipts, support, contributions, etc.^[5] This operating revenue can include donations from individuals and corporations, support from government agencies, income from activities related to the organization’s mission, 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 (along with other accounts).

Association dues revenue[edit]

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, donations or outsourcing the association’s digital media outlets.

Business revenue[edit]

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 or grocery, most revenue is from the sale of goods. Service businesses such as law firms and barber shops receive most of their revenue from rendering services. Lending businesses such as car rentals and banks receive most of their revenue from fees and interest generated by lending assets to other organizations or individuals.

Revenues from a business’s primary activities are reported as sales, sales revenue or net sales.^[2] This includes product returns and discounts for early payment of invoices. Most businesses also have revenue that is incidental to the business’s primary activities, such as interest earned on deposits in a demand account. This is included in revenue but not included in net sales.^[6] Sales revenue does not include sales tax 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.^[7]

Accounting terms[edit]

Net sales = gross sales – (customer discounts, returns, and allowances)

Gross profit = net sales – cost of goods sold

Operating profit = gross profit – total operating expenses

Net profit = operating profit – taxes – interest

Net profit = net sales – cost of goods sold – operating expense – taxes – interest

EBIT = net profit + taxes + interest

EBITDA = net profit + taxes + interest + depreciation + amortization

Accounting[edit]

While the current IFRS conceptual framework^[8] 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^[9] includes OtherGainsLosses, GainsLossesOnNetMonetaryPosition and similar items.

Financial statement analysis[edit]

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). Net income is the result of this equation, but revenue typically enjoys equal attention during a standard earnings call. 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 attached to it:

• The most important being gross margin and profit margin; 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 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 is a calculation of revenue less the cost of goods sold, and is used to determine how well sales cover direct variable costs relating to the production of goods.
• Net income/sales, or profit margin, is calculated by investors to determine how efficiently a company turns revenues into profits.

Government revenue[edit]

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 or department responsible for collecting government revenue from companies and individuals.^[10]

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[edit]

• List of companies by revenue
• Legal tender#Demonetization
• Proceeds of crime

References[edit]

External links[edit]

• The dictionary definition of revenue at Wiktionary

What Is Revenue?

Revenue is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales on the income statement.

Understanding Revenue

Revenue is money brought into a company by its business activities. There are different ways to calculate revenue, depending on the accounting method employed. Accrual accounting will include sales made on credit as revenue for goods or services delivered to the customer. Under certain rules, revenue is recognized even if payment has not yet been received.

It is necessary to check the cash flow statement to assess how efficiently a company collects money owed. Cash accounting, on the other hand, will only count sales as revenue when payment is received. Cash paid to a company is known as a «receipt.» It is possible to have receipts without revenue. For example, if the customer paid in advance for a service not yet rendered or undelivered goods, this activity leads to a receipt but not revenue.

Revenue is known as the top line because it appears first on a company’s income statement. Net income, also known as the bottom line, is revenues minus expenses. There is a profit when revenues exceed expenses.

To increase profit, and hence earnings per share (EPS) for its shareholders, a company increases revenues and/or reduces expenses. Investors often consider a company’s revenue and net income separately to determine the health of a business. Net income can grow while revenues remain stagnant because of cost-cutting.

Such a situation does not bode well for a company’s long-term growth. When public companies report their quarterly earnings, two figures that receive a lot of attention are revenues and EPS. A company beating or missing analysts’ revenue and earnings per share expectations can often move a stock’s price.

Types of Revenue

A company’s revenue may be subdivided according to the divisions that generate it. For example, Toyota Motor Corporation may classify revenue across each type of vehicle. Alternatively, it can choose to group revenue by car type (i.e. compact vs. truck).

A company may also distinguish revenue between tangible and intangible product lines. For example, Apple products include iPad, Apple Watch, and Apple TV. Alternatively, Apple may be interested in separately analyzing its Apple Music, Apple TV+, or iCloud services.

Revenue can be divided into operating revenue—sales from a company’s core business—and non-operating revenue which is derived from secondary sources. As these non-operating revenue sources are often unpredictable or nonrecurring, they can be referred to as one-time events or gains. For example, proceeds from the sale of an asset, a windfall from investments, or money awarded through litigation are non-operating revenue.

Formula and Calculation of Revenue

The formula and calculation of revenue will vary across companies, industries, and sectors. A service company will have a different formula than a retailer, while a company that does not accept returns may have different calculations than companies with return periods. Broadly speaking, the formula to calculate net revenue is:

Net Revenue = (Quantity Sold * Unit Price) — Discounts — Allowances — Returns

The main component of revenue is the quantity sold multiplied by the price. For a service company, this is the number of service hours multiplied by the billable service rate. For a retailer, this is the number of goods sold multiplied by the sales price.

The obvious constraint with this formula is a company that has a diversified product line. For example, Apple can sell a MacBook, iPhone, and iPad, each for a different price. Therefore, the net revenue formula should be calculated for each product or service, then added together to get a company’s total revenue.

There are several components that reduce revenue reported on a company’s financial statements in accordance to accounting guidelines. Discounts on the price offered, allowances awarded to customers, or product returns are subtracted from the total amount collected. Note that some components (i.e. discounts) should only be subtracted if the unit price used in the earlier part of the formula is at market (not discount) price.

Example of Revenue

Microsoft boasts a diversified product line that contributes many types of revenue. The company defines its business in several different channels including:

• Productivity and Business Processes: Office products (commercial and consumer), LinkedIn, Dynamics products
• Intelligent Cloud: Server products and cloud services
• More Personal Computing: WIndows OEM, Windows Commercial, Xbox, Surface.

As shown below, Microsoft reported $49.36 billion during Q3 2022. High-level reporting requirements have Microsoft’s income statement being shown between product revenue and service/other revenue.

In supplementary reports, Microsoft further clarifies revenue sources. For example, the breakdown of the $49.36 billion of revenue earned during Q3 2022 was split fairly evenly between the three product lines:

Revenue vs. Income/Profit

Many entities may report both revenue and income/profit. These two terms are used to report different accumulations of numbers.

Revenue is often the gross proceeds collected by an entity. It is the measurement of only income component of an entity’s operations. For a business, revenue is all of the money it has earned.

Income/profit usually incorporates other facets of a business. For example, net income or incorporate expenses such as cost of goods sold, operating expenses, taxes, and interest expenses. While revenue is a gross amount focused just on the collection of proceeds, income or profit incorporate other aspects of a business that reports the net proceeds.

Special Considerations

Recognizing Revenue: ASC 606

In 2016, the Financial Accounting Standards Board released Revenue from Contracts with Customers (Topic 606). The accounting standards update outlined new guidance on how companies must report revenue. The guidance requires an entity recognize revenue in accordance with five steps:

1. Identify the contract with the customer.
2. Identify the performance obligation in the contract.
3. Determine the contract price.
4. Allocate the transaction price to the performance obligation(s) in the contract.
5. Recognize revenue when the entity satisfies a performance obligation.

Government Revenue

In the case of government, revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral or resource rights, as well as any sales made. Governments collect revenue from citizens within its district and collections from other government entities.

Nonprofit Revenue

For nonprofits, revenues are its gross receipts. Its components include donations from individuals, foundations, and companies, grants from government entities, investments, and/or membership fees. Nonprofit revenue may be earned via fundraising events or unsolicited donations.

Real Estate Revenue

In terms of real estate investments, revenue refers to the income generated by a property, such as rent or parking fees or rent. When the operating expenses incurred in running the property are subtracted from property income, the resulting value is net operating income (NOI). Vacant real estate technically does not earn any operating revenue, though the owner of the property may be required to report fair market value adjustments that result in gains when externally reporting their finances.

Whether you own an e-commerce or simply have experience working in the corporate world, you’ve likely come across the word “revenue” — but what exactly does it mean? And why is it so important? We’ll tell you. 

Read on to discover everything you need to know about revenue, including the word’s definition, examples, and more. 

What Is the Definition of Revenue?

If you were to browse one of the many trusted English Dictionaries like Cambridge Dictionary or the many others, you would see revenue defined as the total income produced from a specific source. 

Revenue can also be defined as government income produced due to taxation; however, this definition of the word was not recorded until the 1680s and would not be popularized until 1971 — but more on that later.

Gross sales is another term you may see in place of revenue and is often referred to as the “top line” because it sits on the very top of the income statement — on its “top line.”

Revenue can be defined as the income the government receives from taxes and money earned by any certain business. 

What Are Some Examples of Revenue?

Since we have a few slightly varying meanings behind the word revenue, you would think it is safe to assume there are a few different types of revenue — and you would indeed be correct. 

Read on to discover a few examples of revenue in varying industries:

• Government revenue — Revenue is the money any government may receive from securities sales, fees, fines, inter-governmental grants, resource and mineral rights sales, and income received through taxation. Government revenue encompasses all money received from any source outside of the original government entity.

• Non-profit revenue — Gross receipts, components include; donations from foundations, individuals, or companies; investments; fundraising activities; grants from government entities; and membership fees.

Adversely, when it comes to revenue from real estate investments, revenue here refers to the income generated by any given property. This revenue could be through things like parking fees, but more commonly, it refers to the rent obtained from a property.

Note to the Reader: An acronym that you may see when used in regards to real estate revenue is (NOI) or net operating income. The NOI is obtained when the operating expenses that are incurred while running a property are subtracted from the property income.

Associated Words That You Should Know

As you continue on your journey to better understand the word revenue, you’ll likely come across many terms that may cause some confusion if you aren’t exactly sure what they mean. 

So to prevent this from happening, we’ve put together a list of words and their definitions that are commonly associated with the term revenue. 

By learning these associated terms, you will improve your understanding of the word revenue, and you’ll also enhance your overall vocabulary!

• Cash flow — In reference to the net amount of cash being transferred in as well as out of any single business

• Operating profit — Excluding deductions of tax and interests, “operating profit” is the total earnings from a company’s core business operations.

• Retained earnings — Defined as the profit a company obtains after accounting for dividends or net earnings, frequently referred to as an earning surplus.

• COGS — Acronym for cost of good sold

What Is the Origin of Revenue?

Revenue as we use it today (defined as income from possessions or property) was first documented in the 15th century. Revenue is a derivative of the Old French revenue — which itself was defined as “to come back or to return. “

The noun is also a past participle of revenir which dates back to the 10th century and comes from the Latin revenire.

What Are the Synonyms and Antonyms of Revenue?

To help you further your knowledge of the word revenue, we have put together a list of synonyms and antonyms for the word revenue provided by the WordHippo and Power Thesaurus.

Synonyms of revenue:

• Income
• Earnings
• Source of income
• Receipts
• Amount of money
• Dividend
• Sale of goods
• Money on hand
• Accounts receivable
• Fundraising 
• Advance
• Gross income
• Total income
• Net sales
• Compensation
• Accrual
• Gross pay
• Taxation
• Bottom line
• Cash flow
• Net sale
• Returns
• Profits

Antonyms of revenue:

• Expense
• Debt
• Disbursement
• Costs
• Outlay
• Misfortune
• Insufficiency
• Undersupply
• Arrears 
• Expenditure
• Minus sum of money
• Dues
• Lack of profit

Examples of Revenue Used in a Sentence

Now that you understand what revenue means, it’s time to practice using our word of the day in a sentence. Quiz yourself to see how many sentences you can come up with using the term revenue. Need some help? Not to worry — check out our usage examples listed below:

I am trying to read the balance sheet, but the advertising revenue has not been input, nor have a few other types of revenue.

If you’re looking for the company’s revenue from last year, you’ll need to ask the CPA for the corresponding financial statements.

Sir, clearly, I’m aware of where net income appears on our company’s income statement. What I am trying to locate is the non-operating revenue.”

Summary

Simply put, revenue is money earned. Whether that is about a business earning money through the sales of goods or a government receiving income due to taxes, both are defined as revenue. 

Sources:

1. Revenue: definition | The Cambridge English Dictionary
2. What is another word for revenue? | Word Hippo 
3. Revenue definitions – Meaning of Revenue | Power Thesaurus

Revenue is the total amount of money received by an organisation in return of the goods sold or services provided during a given time period.

In other words, revenue of a firm refers to the amount received by the firm from the sale of a given quantity of a commodity in the market.

For example, if a firm obtains 2, 50,000 from the sale of 10 computers, the received amount of 2, 50,000 is its revenue earned during the time period.

Also Read: Production in Economics

Types of Revenue

What is Revenue Types? There are mainly three types of revenue:

1. Total Revenue
2. Average Revenue
3. Marginal Revenue

Total Revenue

Total Revenue (TR) of a firm refers to total receipts from the sale of a given quantity of a commodity. In other words, total revenue is the total income of a firm. Total revenue is calculated by multiplying the quantity of the commodity sold with the price of the commodity.

Formula: Total Revenue = Quantity × Price

Total Revenue Example

For example, if a firm sells 10 fans at a price of ₹ 2,000 per fan, then the total revenue would be calculated as follows: 10 fans × ₹ 2,000 = ₹ 20, 000

Average Revenue

Average Revenue (AR) of a firm refers to the revenue earned per unit of output sold. It is calculated by dividing the total revenue of the firm by the total number of units sold.

Formula: Average Revenue = Total revenue / Total number of unit sold

Average Revenue Example

For example, if total revenue from the sale of 10 fans at the rate of 2000 per fan is ₹ 20, 000, then:

Average Revenue = 20000 / 10 = ₹ 2,000

Here, it is important to note that AR and price of a commodity are equal in value. This can be explained as follows

TR = Quantity × Price……………………..(1)
AR = TR / Q ………………………………………….(2)

Substituting the value of TR from equation (1) in equation (2),
AR = Quantity Price / Quantity
Therefore, AR = Price

Marginal Revenue

Marginal Revenue (MR) of a firm refers to the revenue earned by selling an additional unit of the commodity. In other words, the change in total revenue resulting from the sale of an additional unit is called marginal revenue.

MR_n = TR_n – TR_n-1

Where MR_n = marginal revenue of nth unit (additional unit), TR_n = total revenue from n units, TR_n-1 = Total revenue from (n – 1) units and n = number of units sold.

Marginal Revenue Example

if the total revenue realised from the sale of 10 fans is 2,000 and that from sale of 11 fans is ₹ 2,500, then MR of the 11th fan will be calculated as follows:

MR₁₁ = TR₁₁ – TR₁₀
MR₁₁ = ₹ 2,500 – ₹ 2,000 = ₹ 500

Also Read: Types of Cost

Business Economics Tutorial

(Click on Topic to Read)

Go On, Share article with Friends

Did we miss something in Business Economics Tutorial? Come on! Tell us what you think about our article on What is Revenue? | Business Economics in the comments section.