# What is revenue?

Author:
Harold Averkamp, CPA, MBA

## Definition of Revenue

Revenue is the amount a company receives from selling goods and/or providing services to its customers and clients. A company’s revenue, which is reported on the first line of its income statement, is often described as sales or service revenues. Hence, revenue is the amount earned from customers and clients before subtracting the company’s expenses.

## Revenue vs Net Income

While revenue is the top line on a company’s income statement, net income is often referred to as the bottom line.

The difference between the amount of revenue and the amount of net income is significant. Here are some hypothetical amounts to illustrate the point:

• Revenue from sales of products \$300,000
• Cost of the products that were sold \$200,000
• Expenses (wages, rent, ads, etc.) \$88,000
• Net income (before tax) \$12,000

Using the above amounts we see that the company’s net income was only 4% of its revenue (\$12,000/\$300,000).

## Calculating Revenue

The best way to calculate a company’s revenue during an accounting period (year, month, etc.) is to sum up the amounts earned (as opposed to the amounts of cash that were received). For example, if a new company sold \$75,000 of goods in December but allows the customer to pay 30 days later, the company’s December sales are \$75,000 (even though no cash was received in December). Reporting revenues in the period in which they are earned is known as the accrual basis of accounting. Hence, a company’s revenue could occur before the cash is received, after the cash is received, or at time that the cash is received.

(Note that for income tax reporting, smaller companies may use the cash basis of accounting.)

## Examples of Revenue

Common examples of revenue include:

• A retailer’s sales of merchandise, sales of extended warranties, and repair revenues
• The fees earned by a law firm for legal services provided to clients
• The amounts earned by publishers of magazines, newspapers, and electronic information

## Revenue vs Income

It is important to note that many people use the term income to mean revenue. Perhaps a business owner sees money “coming in” from customers and logically refers to it as “income”. However, it is best to use the word sales or revenue when referring to the amounts earned from customers, and to use the word income for an amount that reflects the subtraction of expenses.

Join PRO to Track Progress
Must-Watch Video

• Perform better at your job
• Get hired for a new position

#### PRO Plus

Features
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
All PDF Files
Progress Tracking
Certificate - Debits and Credits
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

#### Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

• Debits and Credits