If you’re like most people, you probably use the terms “revenue” and “income” interchangeably. After all, they both refer to money that a business brings in, right? Wrong. Although these two terms are often used interchangeably, there is a big difference between revenue vs income. Revenue is the total amount of money that a business brings in from its sales or other activities over a period of time. Income, on the other hand, is the net profit that a business earns after expenses have been deducted from revenue. In short: revenue = total money earned; income = profit after expenses have been paid. So now that we know the difference between these two terms, let’s take a closer look at revenue vs income…
Revenue vs Income: What’s the Difference?
This overview will help you distinguish between revenue and income and help you understand how they differ.
Revenue is the “top line” or “gross income” figure from which all costs and expenses are deducted to arrive at net income.
Income can be used to mean either revenue or net income. Net income is calculated by subtracting operating expenses from total revenue. This “bottom line” number is a key metric for businesses, as it shows how much profit they are making.
Types of Revenue
Let’s take a look at what “revenue” means by looking at the different types of it that are frequently seen in accounting and finance.
Revenue can be broken down into 3 main categories:
There are many types of revenue, but some common ones include the sale of goods or services, rental income, and interest income.
Types of Income
As we’ve explained, “revenue” can be a bit confusing, as it’s often used to refer to income. Net income, on the other hand, refers to your income after all your expenses have been subtracted.
Income sources can include:
Operating income (income from business operations) Non-operating income Discontinued operations
Examples of Revenue vs Income
Let’s take a look at some scenarios to further illustrate this point.
The pizza company, Tom’s, provides customers with the option to pay with cash or credit.
Tom gave his accountant all the receipts from sales at the end of the year, as well as invoices and receipts for employee wages, supplies, energy, food, and drink costs. His accountant took all the receipts and told Tom that his net income was $125,869.
The answer is “net income.”
Portrait photography, wedding photography, family photography and special occasion photos are the services offered by this local photographer.
She charges clients for these services upfront and at the end of the year, enters all the invoices into a spreadsheet and determines that her revenue is $248,120.
The answer, of course, is revenue.
In accounting, the income statement is a report that shows how much money a company has made and how it has made it over a particular period of time. The statement includes information about a company’s revenues, expenses, and net income.
The difference between revenue vs income
Revenue is the amount of money generated by the sale of products and services. The income is the remaining amount after all expenses and taxes have been subtracted. It represents the profits or losses over a period of time.
In business, your total revenue is the amount of money your company has made during a specific period of time.
When figuring out how much you make, the first expense is cost of sales, which can include a wide variety of costs depending on your business model. I’ll go into more detail about costs of sale in a bit.
To be successful, it’s important to understand the difference between revenue and income, and how each affects different parts of your business.
The “top-line” or “revenue” of a company is the total amount of money brought in by a company. This total is represented on an “income statement”, which is a document that has a complete calculation of all money that comes in and goes out of a business.
Net income is the money that a business makes after deducting all costs. This amount is found on the business’ bottom line, or net income statement. It’s important to note the difference between income and profit.
Revenue is the amount of money your business earns, while expenses are the money you spend.
A few terms that you may see or hear about are:
Sales, or gross revenue, is the amount of money that a business earns through selling its products or services. The gross profit, or gross profit margin, is the percentage of each dollar of revenue from which costs are subtracted.
Despite reporting huge revenues, startups like WeWork and Uber still had a negative income. This is because their expenses were much higher than their net earnings.
Key terms to remember for revenue vs income
By going through this, we uncovered some other important financial information. Some of the main points I covered were:
The total amount of income that a company generates before any deductions or taxes. It can be divided into two categories, revenue and profit.
Cost of Goods Sold is any expense that directly creates the product or the service.
Net income is your total net income after subtracting any interest or taxes on your profits.
In conclusion, it’s important to remember that revenue vs income are two separate issues. Revenue is the total amount of money that a business brings in from its sales or other activities over a period of time. Income, on the other hand, is the net profit that a business earns after expenses have been deducted from revenue. So when you’re keeping track of your finances, make sure you know which number you’re looking at – otherwise you could be making some serious mistakes!