Revenue
Encyclopedia
In business
, revenue is income
that a company
receives from its normal business activities, usually from the sale of goods and services
to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover.
Some companies receive revenue from interest
, dividend
s or royalties
paid to them by other companies. Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit, received 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 expense
s in a given period. In accounting
, revenue is often referred to as the "top line" due to its position on the income statement
at the very top. This is to be contrasted with the "bottom line" which denotes net income.
For non-profit organization
s, annual revenue may be referred to as gross receipts. This revenue includes donations from individuals and corporations, support from government agencies, income from activities related to the organization's mission
, and income from fundraising activities, membership dues, and financial investments such as stock shares in companies
.
In general usage, revenue is income received by an organization in the form of cash
or cash equivalents. Sales revenue
or revenues is income received from selling goods or services over a period of time. Tax revenue
is income that a government receives from taxpayers.
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 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".
and/or grocery, most revenue is from the sale of goods. Service businesses such as law firm
s and barber shops
receive most of their revenue from rendering services. Lending businesses such as car rental
s and bank
s receive most of their revenue from fees and interest generated by lending asset
s to other organizations or individuals.
Revenues from a business's primary activities are reported as sales, sales revenue or net sales. This includes product returns and discounts for early payment of invoice
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
. This is included in revenue but not included in net sales. 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.
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 income growth would be tainted if a company failed to produce significant revenue growth. Consistent revenue growth, as well as income growth, is considered essential for a company's publicly traded stock
to be attractive to investors.
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 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....
or department
responsible for collecting government revenue from companies and individuals.
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. The income derives 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 in that to totally cancel the currency in circulation provision all currency would have to be returned to the reserve bank and cancelled.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
, revenue is income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
that a company
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
receives from its normal business activities, usually from the sale of goods and services
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover.
Some companies receive revenue from interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
, dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s or royalties
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
paid to them by other companies. Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit, received during a period of time, as in "Last year, Company X had revenue of $42 million."
Profits
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
or net income
Net income
Net income is the residual income of a firm after adding total revenue and gains and subtracting all expenses and losses for the reporting period. Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings...
generally imply total revenue minus total expense
Expense
In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...
s in a given period. In accounting
Accountancy
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in...
, revenue is often referred to as the "top line" due to its position on the income statement
Income statement
Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...
at the very top. This is to be contrasted with the "bottom line" which denotes net income.
For non-profit organization
Non-profit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
s, annual revenue may be referred to as gross receipts. This revenue includes donations from individuals and corporations, support from government agencies, income from activities related to the organization's mission
Mission statement
A mission statement is a statement of the purpose of a company or organization. The mission statement should guide the actions of the organization, spell out its overall goal, provide a path, and guide decision-making...
, and income from fundraising activities, membership dues, and financial investments such as stock shares in companies
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
.
In general usage, revenue is income received by an organization in the form of cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...
or cash equivalents. Sales revenue
Sales (accounting)
In bookkeeping, accounting, and finance, Net sales are operating revenues earned by a company when it sells its products. Revenue are reported directly on the income statement as Sales or Net sales....
or revenues is income received from selling goods or services over a period of time. Tax revenue
Tax revenue
Tax revenue is the income that is gained by governments through taxation.Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency that collects the tax may not be part of central government, but may be an alternative third-party...
is income that a government receives from taxpayers.
In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard accounting practice
Standard accounting practice
Standard accounting practices require publicly-traded companies to follow certain accounting rules when presenting financial statements so that the readers of the statements can easily compare different companies...
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
Generally Accepted Accounting Principles
Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards...
or International Financial Reporting Standards
International Financial Reporting Standards
International Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
.
In a double-entry bookkeeping system
Double-entry bookkeeping system
A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts....
, revenue accounts are general ledger
General ledger
The main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses. Each General Ledger is divided into debits and credits sections. The left hand...
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".
Business revenue
Business revenue is income from activities that are ordinary for a particular corporation, company, partnership, or sole-proprietorship. For some businesses, such as manufacturingManufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
and/or grocery, most revenue is from the sale of goods. Service businesses such as law firm
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 about their legal rights and responsibilities, and to represent clients in civil or criminal cases, business transactions, and other...
s and barber shops
Barber
A barber is someone whose occupation is to cut any type of hair, and to shave or trim the beards of men. The place of work of a barber is generally called a barbershop....
receive most of their revenue from rendering services. Lending businesses such as car rental
Car rental
A car rental or car hire agency is a company that rents automobiles for short periods of time for a fee...
s and bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
s receive most of their revenue from fees and interest generated by lending asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s to other organizations or individuals.
Revenues from a business's primary activities are reported as sales, sales revenue or net sales. This includes product returns and discounts for early payment of invoice
Invoice
An invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms...
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
Demand account
A transactional account is a deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels....
. This is included in revenue but not included in net sales. Sales revenue does not include sales tax
Sales tax
A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
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.
Financial statement analysis
Revenue is a crucial part of financial statement analysis. A company’s performance is measured to the extent to which its asset inflows (revenues) compare with its asset outflows (expenses). Net IncomeNet income
Net income is the residual income of a firm after adding total revenue and gains and subtracting all expenses and losses for the reporting period. Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings...
is the result of this equation, but revenue typically enjoys equal attention during a standard earnings call
Earnings call
Earnings Calls are a teleconference in which a public company discusses the financial results of a reporting period. The name comes from the bottom line numbers in the income statement - earnings per share. The U.S. based National Investor Relations Institute says that 92% of companies...
. 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 income growth would be tainted if a company failed to produce significant revenue growth. Consistent revenue growth, as well as income growth, is considered essential for a company's publicly traded stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
to be attractive to investors.
Revenue is used as an indication of earnings quality. There are several financial ratios attached to it, the most important being gross margin
Gross margin
Gross margin is the difference between revenue and cost before accounting for certain other costs...
and profit margin
Profit margin
Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.Net profit Margin = x100...
. Also, companies use revenue to determine bad debt expense
Bad debt
A bad debt is an amount that is written off by the business as a loss to the business and classified as an expense because the debt owed to the business is unable to be collected, and all reasonable efforts have been exhausted to collect the amount owed...
using the income statement method.
Price / Sales is sometimes used as a substitute for a Price to earnings ratio
P/E ratio
The P/E ratio of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share...
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
Gross margin is the difference between revenue and cost before accounting for certain other costs...
is a calculation of revenue less cost of goods sold
Cost of goods sold
Cost of goods sold refers to the inventory costs of those goods a business has sold during a particular period. Costs are associated with particular goods using one of several formulas, including specific identification, first-in first-out , 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
Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.Net profit Margin = x100...
, 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/or fees) received from sources outside the government entity. Large governments usually have an agencyGovernment agency
A government or state agency is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an intelligence agency. There is a notable variety of agency types...
or department
Departmentalization
Departmentalization refers to the process of grouping activities into departments.Division of labour creates specialists who need coordination. This coordination is facilitated by grouping specialists together in departments....
responsible for collecting government revenue from companies and individuals.
Government revenue may also include reserve bank
Reserve Bank
Reserve Bank can amongst other things be:*Reserve Bank of Australia*Reserve Bank of Fiji*Reserve Bank of India*Reserve Bank of New Zealand*South African Reserve Bank*Federal Reserve Bank *Reserve Bank of Vietnam...
currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
which is printed. This is recorded as an advance to the retail bank together with a corresponding currency in circulation expense entry. The income derives 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 in that to totally cancel the currency in circulation provision all currency would have to be returned to the reserve bank and cancelled.
See also
- Net revenue
- List of companies by revenue
- Micro-revenueMicro-revenueMicrorevenue follows the logic that great change can be accomplished by many small acts and is an evolved idea from the success of the microcredit approach to financing small business. Microrevenue streams, of traditional or virtual currency, can be enabled within web-based communities by creating...