The Difference between Revenue and Income and Their Profits
rancakmedia.com – Many people are still confused about the difference between revenue and income, for those of you who want to know more details, you can see the article below.
In the world of accountants and the world of finance, revenue and income have different meanings.
Most people still very often use the two words interchangeably in the wrong context.
In fact, the two terms revenue and income have different meanings.
So, as an investor and young businessman, it's a good idea for you to understand and understand in advance the differences between these two terms.
Here comes the explanation.
Definition of Revenue and Income
Revenue is financial statements of the total results of the company's main business products or services during a specified period of time.
Simply put, revenue is the amount of money a company receives from selling investment goods or services, and not from products.
In other words, income can be interpreted as the amount of net profit earned by company actors.
Revenue is divided into two types, namely:
Revenue immediately generated by the core of the company, such as product sales or service offerings.
Secondary income such as interest on bank deposits, income gains and other commercial operations. How about this?
- Calculation of the basic income of the company.
If you offer goods or products from your company, then:
- Revenue = Number of products sold multiplied by the average price of goods
If your company provides services, then:
- Revenue = Number of clients multiplied by the average service price
There are also many factors that affect earnings, for example:
- Return and refund services are available
- Interest rate
- Currency exchange rates
- Prices of products and services
- Various products and services provided.
Income is the amount of money obtained from sales during a certain period that has been deducted by fees, costs and other costs of the products provided (HPP). Revenue tends to be more focused on net profit.
Here's how to calculate income in a simple way
- Gross profit
GP = Total gross profit: Total sales or revenue
- Net profit
NP = Total net revenue: total sales or revenue
The Difference between Revenue and Income
Revenue is often defined as Income in the broad economy. In accounting, however, the definition of Revenue is different from income. In other words, income from excess Revenue over costs that cannot be used to create increased revenue in the future can be earned (expired expenses).
We can conclude that income is net income or net profit after deducting costs, while Revenue can be interpreted as gross income or gross profit from a business that is not deducted by costs. Revenue is often referred to as total sales turnover.
Revenue is obtained not only through company sales, but also from returns or interest on deposits and investments. All these are considered as a source of income or income for the company.
Meanwhile, Income solely comes from company results. The results of company sales in the form of products or services are calculated as a whole and this value is the company's income.
Differences Based on Calculations
In a company to calculate Revenue, only all cost components or revenue components must be entered. In contrast to the two ways of measuring income, namely gross profit and net profit.
Calculation of gross profit means reducing revenue by COGS or cost of goods sold. For net profit, the calculation reduces the amount of gross profit, with indirect costs associated with production activities. In general, these indirect costs include promotional costs, taxes and other costs, so that customers can receive products or services in general.
Which Investment Is More Profitable, Income or Revenue?
Where does an investor consider the amount of revenue and income that is important for the company, which of the two is more important? We may know that if we compare the value of income to income, it is much better to contemplate.
When you start increasing, the value of the shares will increase, which also increases the value of the company's income. Dividend distribution is usually done by looking at the company's profit value.
However, this does not mean that the Revenue value must be ignored when choosing an investment company. To achieve Income, a procedure called a comparison or matching process must be carried out, which in the accounting process is a concept that must be respected in determining and determining Income.
Below we have summarized some frequently asked questions about revenue and income, as follows:
Are Revenue and Sales the Same?
For those of you who are often mistaken, sales means reflecting the company's main source of income which is obtained from the sale of goods or services. Sales are recorded net after deducting the return of goods or various discounts for customers. And sales are also commonly referred to as revenue.
From what has been discussed above, we can conclude that the success of a business is seen from the results of income and revenue. Meanwhile, for those of you who invest or work, you will definitely aim more at income.
They say the process does not betray the results. This term is suitable to describe the income that can be achieved from a process that is carried out continuously. The harder and more diligent the process, the higher the potential income that will be achieved.
Hopefully after this, you understand Revenue and Income better, and can use the two terms appropriately.