Revenue

Business, Legal & Accounting Glossary

Definition: Revenue


Revenue

Quick Summary of Revenue


Created by a transaction or event arising during the ordinary activities of the business which causes an increase in the ownership interest.




What is the dictionary definition of Revenue?

Dictionary Definition


the entire amount of income before any deductions are made.

  1. The income returned by an investment.
  2. The total income received from a given source.
  3. All income generated for some political entity’s treasury by taxation and other means
  4. The total sales; turnover.
  5. The net revenue, net sales.

Revenue is the “top line” or “gross income” figure from which costs are subtracted to determine net income. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.


Full Definition of Revenue


Revenue is referred to as income earned by any firm or nation in exchange for any good or service. Income received in exchange for normal business activity is termed as revenue. Income collected from sales of goods and services, interest, dividends, and profits is all accounted for as revenue.

Revenue of any organization is measured when there is an increase in assets or decrease in liabilities during any accounting period. Increase in assets could be due to an increase in product sales, an increase in services, and an increase in earnings from various shares and debentures. Revenue for government accounting can be measured by receipts from various taxes, customs, and other allotments.

Revenue is a term primarily used in the United States to describe the amount of money a company generates in a set period of time through the sale of products and/or services. Revenue is calculated before any expenses are deducted, with the reporting of revenue varying from business to business. Revenue can be ‘recognized’ or ‘received’ in different ways. Revenue can be legally recognized when products/services are exchanged for cash or other assets, or when a claim to cash or asset is made (such as a signed contract). The rules specifying when the recognition of revenue should occur are based on various accounting methods, including cash basis accounting and accrual basis accounting. Businesses often break revenue down by operating segment, department, geographic location and/or product/service line, among others. In government, revenue is derived from taxes, liens, licenses and other fees. Non-profit organizations broaden revenue classification to include donations, grants and barters. Another name for revenue is “top line” because of its prominent position at the top of an income statement. Often the terms sales and revenue are used interchangeably.

Revenue is also known as “REVs”.  Revenues can also be represented by accounts receivable.

Revenue Types

According to business activities, revenue can be differentiated into the following types.

  • Business revenue – It is the type of income that flows from business activities like sale of goods, rendering different services, the interest that is generated by lending assets and so on.
  • Tax revenue – It is income that is generated by collecting different types of taxes.
  • Government revenue – It is income received by the government through agencies and other departments.

Average Revenue

A seller earns money against any product when a buyer pays price for it. Average revenue can be obtained by dividing the total revenue earned by total products sold.

Thus,

AR (Average revenue) = TR (total revenue) / Q

Where Q = total output sold

Marginal Revenue

Net revenue earned by selling an additional unit of product is termed as marginal revenue. If any firm sells n-1 products, then the extra revenue earned by selling n number of products is termed as marginal revenue. Thus,

MR (marginal revenue) = ∆TR / ∆Q

Where ∆TR = change in total revenue for selling an extra unit, ∆Q = change of total output for selling an extra unit

A graphical representation can illustrate the concept of marginal revenue in a better way.

The area under the demand curve is total revenue.


Examples of Revenue in a sentence


The CEO made his strategic recommendations using the revenue projection from last year, and it didn’t take into account the effect of the new tax laws.
At first glance, this company looks very successful, but their monthly revenue never seems to be more than ten per cent more than their monthly expenses.


Synonyms For Revenue


income
proceeds
earnings
return
gain
REVs


Related Phrases


Accounts receivable
Balance sheet
Income statement
Net income


Revenue FAQ's


What Is Revenue?

Revenue is the amount of money a company is allowed to recognize from the sale of its goods, services, or intellectual property during an accounting period. It is synonymous with “sales”, turnover or “top line.”

You might think that revenue = sales, so the number you see on the income statement is exactly how much money the company brought in from selling its stuff. Yes and no.

Yes, because that is how a company generates sales, by selling its “stuff” be it goods, services, or intellectual property. And the company gets paid for that.

No, because of a couple of things. First, the number shown on the income statement is usually “net” of various items, such as expected returns. Having tracked sales, delivery, and returns, a company knows how much of the stuff it delivers will be returned on average, so it nets out this amount, showing how much actually remains in the customers’ hands.

Second, thanks to accrual basis accounting, the company usually hasn’t received all the cash it is owed for the stuff it has sold. Very often, the company will issue short term credit, delivering the goods or services before payment is received. However, if the company is reasonably sure that payment will indeed be received, the company is allowed to “recognize” that sale as revenue.

Recognizing revenue

How and when a company “recognizes” revenue is very important, as it determines how much net income a company will show in any given accounting period. For instance, if a company cannot recognize revenue until 100% of the item is delivered, but it has to show expenses as they happen, then net income is going to be depressed until all of a sudden, when it “earns” that revenue, net income will shoot up to a high level. Now, usually, a company in this type of situation has several projects going on and is recognizing revenue from older projects, so things won’t be quite that lumpy (net loss, net loss, net gain, net loss net loss, net loss, net gain, …), but you can see how this type of revenue recognition would affect the “worth” of the company if all you did was look at the net income line and saw losses and gains coming in at seeming random intervals.

Further, if a customer does not or cannot pay for what it bought, the company can no longer recognize that revenue as “earned” because the reasonable expectation of payment no longer holds.

How a company recognizes revenue is usually one of the first footnotes found below the financial statements and should be read assiduously so that you understand how a company makes money.

Revenue vs. cash

Because revenue can be recognized before the customer pays for what was sold, revenue does not equal the amount of cash brought into the company during the accounting period. Some of what has been sold has actually been paid for, so that results in cash. But some of what has been sold hasn’t been paid for yet. In this case, then the accounts receivable account on the balance sheet is increased by the amount that has been recognized but not paid for yet.

However, the company is also collecting on older receivables, so the balance of that account is going up and down as sales are made and cash is collected. It’s not a linear relationship, in other words.

Tying into the income statement

Net revenue is listed at the top of the income statement and is thus often called the “top line.” All the expenses used to generate that revenue during that reported time period are then listed below it and subtracted from it. The end result is net income at the bottom of the income statement, called, unimaginatively, the “bottom line.”

Revenue is only reported for ongoing operations. If a company is selling or has sold a division of itself, the sales generated by that division are not included in the top line. Instead, that will show up lower down the income statement, as part of “discontinued operations,” usually just above net income (after-tax owed or due has been shown).

Other types of non-revenue gains are shown after the operating portion of the income statement, such as gain on sale of assets or investments, or one-time gains such as from the payment of a lawsuit settlement. Don’t confuse these with “revenue.”


Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/revenue/
Modern Language Association (MLA):
Revenue. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
January 27, 2022 https://payrollheaven.com/define/revenue/.
Chicago Manual of Style (CMS):
Revenue. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
https://payrollheaven.com/define/revenue/ (accessed: January 27, 2022).
American Psychological Association (APA):
Revenue. PayrollHeaven.com. Retrieved January 27, 2022
, from PayrollHeaven.com website: https://payrollheaven.com/define/revenue/

Definition Sources


Definitions for Revenue are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 29th November, 2021 | 72 Views.