Operating Revenue Definition
Operating Revenue means revenue earned by an individual, firm, company, organization from the core activities which they undertake on a regular basis. There are many ways to earn revenue but the operating revenue is earned from the core business activities which the organization undertake in their main working.
How does it Work?
There is no hard and fast rule or set procedure to earn it. The regular activities done by you regularly in the business becomes regular and operating activities. These regular activities are also known as Operating Activities. The companies spent on these core activities to earn revenue. These operating activities, as well as operating revenues, both run hand in hand, i.e., from one hand, the money goes out for the operating activities. On the other hand, money comes in from the revenue earned from these core activities. To earn revenue, one must have a clear understanding of the activities needed to perform to justify the revenue desired to earn.
It reflects the working of the business, i.e., if a business is being run properly with adequate guidance and proper understanding of the business or whether the business needs a proper understanding, guidance.
Examples of Operating Revenue
Example #1
Let us take an example of a business of providing properties on hire and sale. What will be the significant Operating activities from the point of view of the above business?
Solution
The significant operating revenue for the business as mentioned above of hire and sale of properties would be:-
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- Revenue from Renting of properties.
- Revenue of Commission from Sale and purchase of Properties;
- Revenue from Sale of properties.
In the case of properties business, those mentioned above would be considered as Operating because the businesses would be regularly working on sale/purchase of properties and providing them on rent.
Example #2
Let us suppose a business of trading in groceries of Mr. Mohit. Determine his Operating Revenues.
Solution
The Operating Revenues for Mr. Mohit’s trading business would be as follows:
- Revenue from trading of groceries;
- Revenue from a commission on the sale of groceries
Example #3
What will the Operating Revenue in case of a business of Services of Electronics?
Solution
The Operating income in case of a business of Servicing of Electronics would be as follows:
- Revenue from Service Charges
- Revenue from Sale of parts of the Electronic items used in Service
Operating and Non-Operating Revenue
- Operating Revenues are the regular income for any business, whereas Non-Operating Revenue is not a regular income.
- It is earned from the Core Activities of the business. In contrast, the Non-Operating Revenue is earned from the Non-Operating activities of the business.
- It helps in forming important Business decisions while Non-operating revenue helps in investing decisions.
- It helps the stakeholders to make decisions on the continuity of business, whereas Non-Operating Revenues are additional incomes that do not affect such decisions.
- Operating Revenue is the regular income of the business, but Non-Operating Revenue is additional revenue that is not earned from the operating activities of the business.
- Examples of Operating Income are Revenue from Sale of Goods, Revenue from Professional Services, Revenue from Service Charges, Revenue from Rental Income from letting out properties, Revenue from Commission earned from the sale of properties, etc.
Examples of Non-Operating Revenues are Interest Income from Fixed Deposit, Dividend on Investments, Profit from sale of Investments, profit on the sale of old furniture, profit from the sale of machinery, Interest on Income tax refunds, etc.
Importance
- Operating Revenue is one of the most critical revenue for any business as the company earns its main profit from these core activities. A business’s significant portion of assets is invested to earn from the core activities. The businesses register themselves with the Registrar with their main operating activities, which they undertake. They need to intimate with the registrar in case there is any change in the primary operations of the business.
- Since the business’s significant assets are invested in the operating activities, therefore, it is of high importance to earn a high Operating Income as the considerable business expenses have to be incurred from those revenues earned by the businesses. To earn it, there is n number of operating, non-operating expenses incurred by the businesses. To recover those expenses to run the businesses in profit with better returns to the owners, the businesses need to earn higher operating revenue.
- They are of high importance to the stakeholders of the business, as they take a crucial decision of future growth. Their decision would be based on whether the business is capable of earning revenue, or it is good to move out of the business if there is not much growth in the business.
- The business growth is also measured based on the increase or decrease of the Operating Income as higher operating revenue would indicate that the business is doing good in its core activities. In contrast, a fall in revenue would create concerns among the stakeholder and business owners. E.g., whether to continue with the business or to invest in some other opportunities;
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