Most people think that both “revenue” and “income” mean the same, that is, a company has earned money. Some of the business owners may face the same problem, too; that is, they could not really tell the differences between them. However, these two terms are completely different in terms of concepts.
Revenue refers to the sum of money the company has generated by selling its products and services to the customers. Income, on the other hand, is the sum of money remaining after one has deducted all expenses a company has incurred from the sum of revenue generated. Both revenue and income are useful when you want to determine the financial position of your business.
If you want to calculate the sum of revenue your company has generated, you should multiply the prices of goods or services that you have sold with the number of units sold. This is the gross sales that your company has made. To calculate income, you need to subtract the sum of all expenses that the business has incurred in a given accounting (Also see Things You Should Know About Accounting Estimates) period from the total revenue it earned in that period. This is the total earnings of your company in that period.
For example, XYZ Corporation has sold 5,000 chairs in a year. The chairs cost RM80 each. Thus, we know that the sum of revenue it has generated is RM400,000. Then, in that accounting (Also see The Responsibilities of Accounting Department) period, XYZ Corporation has spent RM 300,000 on acquiring raw materials, maintenance of machines, paying employee salaries and so on. So, let us take RM300,000 as the total expenses incurred. To calculate the income that XYZ Corporation has earned, we need to subtract the total expenses from its sum of revenue. Thus, we get to know that its total income is RM100,000.
Both revenue and income (Also see What Can You Find in an Income Statement?) will appear in the profit and loss statement of your business. However, they will appear in different places, where revenue will appear on the top, and income will show up at the bottom of the statement. Hence, revenue is also called the “top line”, and the term “bottom line” refers to the company’s income. The amount of income that a company has earned is a subset of revenue. This means that income is included in the revenue of a company.
In short, revenue is the sum of money a business has earned from its sales. On the other hand, income is the total profit of that company. If you still find it challenging to differentiate revenue and expenses, please do not hesitate to hire an accounting firm in Singapore. The professionals will be able to help you with the accounting (Also see The Importance of Cost Accounting) tasks, and you do not have to worry about the mistakes that you may commit when you are recording the transactions on your own.