Revenue Meaning, Formula, Examples, Sources and Types

So, the sale is counted as revenue, even though the money doesn’t actually exist yet. Accrued revenue could happen if there is a trial period before full payment is due from the customer or interest on investments that is yet to be realized. Revenue is the income generated from normal business operations. In general, income can never be higher than revenue because income is derived from revenue after subtracting all costs.

The example above shows how different income is from revenue when referring to a company’s financials. Operating profit is the total earnings from a company’s core business operations, excluding deductions of interest and tax. Revenue for federal and local governments would likely be in the form of tax receipts from property or income taxes. Governments might also earn revenue from the sale of an asset or interest income from a bond. Charities and non-profit organizations usually receive income from donations and grants. Universities could earn revenue from charging tuition but also from investment gains on their endowment fund.

Revenue Explained

Two common accounting methods, cash basis accounting and accrual basis accounting, do not use the same process for measuring revenue. Calculating revenue gets more difficult for larger or more complex businesses. Straightforward business models can use the “number of units multiplied by cost per unit” formula to calculate income.

The revenue appears at the top of the income statement and is therefore known as the ‘top line’. Revenue shows how much cash a company can generate over a period. The company’s performance is measured to the extent to which its asset inflows compare with its asset outflows . 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.

Revenue Example

In Apple’s 2022 annual earnings report, we can see how Apple has a variety of products that are all sold at different prices, often with discounts and returns involved. However, the table shows how Apple individually calculates revenue for each of these products. Net revenue is also called net what does revenue mean? income, and it shows revenue after all expenses, cost of products sold, depreciation, interest, and taxes have been subtracted. We can see that Apple’s net income is smaller than its total revenue since net income is the result of total revenue minus all of Apple’s expenses for the period.

• Multiplied by the unit price of a shirt which is $10, and then minus any discounts, allowances or returns that have been given on that particular brand of shirt.
• A company’s revenue may be subdivided according to the divisions that generate it.
• The methods used to generate income determine whether it’s considered to be operating or non-operating revenue.
• It may go by other names, including the profit and loss statement or the statement of earnings.
• Revenue and revenue growth are also used in more advanced types of financial analyses, such as financial modeling and discounted cash flow valuation.

A subscription-based company regularly receives payment for goods or services that they deliver in the future. As the company has received money in advance of earning it, this is known as deferred revenue. Therefore, this must be recorded not as actual income but as a current liability. Being able to differentiate between the different types of revenue is vital for proper accounting and reporting.

Revenue:

Revenue is often referred to as the „top-line” because it is the first number listed on the income statement of the financial report. On the other hand, cash accounting only records revenue when the cash is received. In this case, you should also look at the cash flow statement to see how effective the company is at collecting the money owned as cash.

• Pay.com gives you a convenient way to accept multiple payment methods, from credit and debit cards to digital wallets, ACH transfers, and more.
• We also consider an increase in owner’s equity over a given period, before subtracting expenses, as revenue.
• Understanding your revenue is crucial to the health of your business.
• The revenue number is the income a company generates before any expenses are taken out.