Revenue in accounting

In accounting, revenue is the income which is earned from the normal activities of an organization or a business. It is the amount that a business has when it sales goods and provides services to its customers. Revenue is the measure of how much income a company has gained from the sales of its products and services. In other words, you can say that the income received from business-related activities.

Revenue in accounting business finance

Revenue = The sale of goods/services

In accrual accounting, revenues are recorded in the income statement of the company when the service has been delivered either the cash has been received or not.

OR

In accrual accounting, revenues are those values for which the services have been rendered & it does not matter whether the payment has been received or not at the time of delivery.

Example of accrual accounting: Rent

A rental income is earned when the landlord allows someone to use his property or land. It includes a rental contract has all the details of the rental payment.

Examples of revenue

  • Salaries
  • Bonuses
  • Rental income
  • Sale of goods
  • Sales of services
  • Interest revenue

Types of Revenue

Revenues are divided into two different categories:

  • Operating
  • Non-operating

Operating revenues

The revenues which are received from your business’s day-to-day activities. A company earns most of its income from these main business activities.

Examples of operating revenues:

  • Sales: It includes the exchange of goods or products for cash. It includes the sales done by manufacturers, wholesalers, retailers who sell their products to their customers. Example: an income will be recorded as a sale when utensil retailer by selling an induction stove to a customer.
  • Providing services: It is the income which is earned by providing services to the customers.

Non-operating revenues/Other revenues

It is income which is generated by a company outside the firm. In other words, you can say that income generally related to secondary business activities and not related to normal business activities.

Examples of non-operating revenues:

  • Interest income: It is the income which is earned by a businessman from accounts receivables or maybe from other contracts also.

Feature of Revenue

  • The most important feature of revenue is that it helps in getting information about the company’s performance by making a comparison between its asset inflows (revenues) with its asset outflows (expenses).
  • The revenue accounting system is used to manage, maintain the records of the revenues in accounting appropriately.
  • Revenue accounting analyst is a process which analyzes the company’s revenues.

Synonyms of Revenue

Something that generates income: Income generating, revenue-producing, earnings, profit, income-producing, income-earning.

Revenue is a Debit or a Credit

In accounting, the asset accounts are said to have debit balance whereas the liability and owner’s accounts are said to have a credit balance.

  • Service revenues are credited on increasing its balance account.
  • Accounts receivables, as they are assets are debited on increasing.

Revenues are recorded as credited on increasing because they are responsible for increasing the owner’s equity. We know that the owner’s equity is a credit balance and hence, this is the reason for recording revenues as a credit balance.

Revenues in the accounting equation

Accounting equation:

Assets = Liability + Owner’s equity

&

Owner’s equity = revenue – (expenses + dividends)

Hence, the accounting equation for revenues is:

Assets = Liability + (revenue – (expenses + dividends)

The following terms used in accounting for revenue are:

Revenue stream: Revenue stream is that source from which a business can generate income or earns money.

  • Income-generating sources: Provision of services or delivery of goods.

Deferred revenue: It is the revenue which is accepted by the business before the goods have been delivered or services have been rendered to its customers. It is recorded as a liability on the balance sheet of the company as the company becomes liable to deliver the service or goods to the customer after receiving the payment in advance.

Deferred revenue is also known as unearned revenue and advance payments.

Sales revenue: It is the payment which is received by a business by providing products or services to the customers.

Service revenue: It is the sale which is recorded by the business after providing services to its customers.

Revenue bond: Revenue bond is also known as a municipal bond. It is the bond in which repayment funds are taken or obtain to finance an income-producing project.

Example:

  • toll bridge
  • highway

Revenue expenditure: Revenue expenditure is the expenses which have benefits of one year or less than a year. These expenses are recorded as profit and loss when they are incurred.

Example of revenue expenditure:

  • car fuels
  • utility bills

Revenue recognition

Revenue recogintion is a process which states the timings when the revenue is earned. Simply, you can say that it is a process to recognize the revenues of a company. It is generally recorded in the balance sheet of a company.

It is the five-step process which includes:

  1. Indicating a contract with a customer.
  2. Makes a saparate record which indicates explicit and implicit agreements in the contract.
  3. Determine the transaction price.
  4. How the transaction price has been issued to the goods and the services.
  5. It indicates that when power over the goods and services has been transferred to the customers.

Gross revenue VS Net revenue

Gross: means the total of something

Net: means left-over after deducting expenses.

Gross revenue is the total amount of income which has been generated from the selling of goods and services while the net revenue is the total amount left-over after subtracting direct expenses.

Revenue VS Income/Profit VS Turnover

In business, income is the amount which remains after expenses are deducted from revenue, it is also called profit while revenue is the amount that the business derived from the provision of services and delivery of products to its customers. Revenue equals to cost of the Product multiplies the no of sales.

Profit formula= Revenue – Expenses

Revenue Calculation Formula= (Price of Products x No of sales) – (Returns)

Turnover has different meaning at different times. In simple we can say turnover is over all transactions happened in the business.

Comments

Post Your Opinion

Your email address will not be published. Required fields are marked *

Share on facebook status Share on Google Plus Share as Tweet Share on Linkedin Business profile