Difference Between Revenue and Income
The term Revenue depicts the total amount of money earned by an organization by sale of products or rendering of services and at what price is it sold or rendered, while the term income is obtained by deducting all the direct and indirect expenses from revenue showing how well an organization utilizes its resources and achieves its goals using its limited resources.
In terms of concepts, they are entirely different. They are two critical terms that are useful in determining the financial strength of a company.
- Revenue is the total amount of money generated by the sale of a company’s goods or services.
- Income can be deduced by subtracting the total expenses from the total revenue generated by the company.
They can be found in the same financial statement, i.e., the income statement. But the income is a subset of the revenue, whereas the revenue is the superset of the income.
We start the income statement by gross sales and then deduct the sales return or sales discount. And we get net sales. From net salesNet SalesNet sales is the revenue earned by a company from the sale of its goods or services, and it is calculated by deducting returns, allowances, and other discounts from the company's gross sales., we deduct all the expenses (including the operating costs), and we get the income.
Let’s say that ABC Company has sold 3000 products which cost $20 each. So, the total revenue generated is $60000.
Now, let’s say that ABC Company’s total costs include the operational costs (salaries and wages, upkeep of machinery, security, the expense for raw materials, etc.), depreciation, and capital of about $48000. Then the total income or net income will be ($60000 – $48000) = $12000.
- The income, for example, shows how well the company utilizes its resources and reduces its expenditure and operational costs to increase the company’s income effectively.
- On the other hand, revenue only shows us how many products the company has managed to sell and the prices at which they are sold but doesn’t depict the utilization of resources in an efficient way.
Revenue vs. Income Infographics
- To a layman, revenue and income may sound synonymous, but they’re entirely different from each other. Revenue is when a company receives a “consideration” while they sell products/services. On the other hand, when we deduct the cost from the revenue, we get the income.
- Revenue can be calculated by multiplying the number of products sold by their selling price. In contrast, income can be generated by deducting the total expenses from the total revenue. We also need to consider that to find out the net income; we also include income from other sources (sales of scraps, profit on the sale of machinery, etc.).
- Another term for revenue is “top line,” which means it is at the top of the company’s financial statements. Whereas another term for income is “bottom line,” which means it is present at the bottom line of the company’s financial statements.
- They are both involved in the production cycle. “Revenue” is the starting point of “income,” whereas “income” provides the monetary cash flowCash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. to produce the next cycle of production and thereby is creating revenue.
In simple terms, there’s a huge difference between revenue and income. Even if many people use them interchangeably, but if you ask an individual that has studied finance, she would tell you that revenue is a big picture. In contrast, income shows the financial direction of a company.
Since the income statementIncome StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements. is one of the four statements that every investor should look at, you should check the revenue and the income both. It may so happen that a company earns huge revenues but doesn’t generate any income (rather than loss). What if you just equate the revenue and income, what would you say in this case?
Like income, even loss would come after deducting all the expenses from the revenue of the company. If the total expenses exceed the total revenue, we will get the loss.
Revenue vs. Income Video
This article has been a guide to Revenue vs. Income. Here we discuss the top differences between Revenue and Income with an example, infographics, and comparison table. You may also have a look at the following articles for gaining further knowledge in Basic Accounting –