Finance has indeed become one of the fields of work that requires the accuracy and tenacity of its workers. In addition, when dealing in the financial world, the perpetrators are also obliged to know the meaning of financial terms that are often used accurately.
Even so, there are some financial terms that are still often misinterpreted by, not only ordinary people, but also workers in the field. An example is the meaning of the words revenue and income. It is undeniable that the two terms often appear and are used by business people, including investors.
However, it is not uncommon for the terms revenue and income to be used inappropriately. This of course can cause confusion among the business actors concerned. In fact, when presented incorrectly, it is not impossible that the two terms can cause financial losses or errors in the delivery of financial statements.
The large number of people who equate the meanings of the two terms rarely cause fatal problems. However, something that is not quite right, of course, must be straightened out so that it does not continue to be done. For that, for those who are still confused, this is the explanation.
Definition of Revenue and Income
In making a company profit report, the term revenue must be the first word mentioned. A description of the company’s revenue is written through the total amount of cash obtained from the sale of company goods and services. Revenue is the result of the main operational actions of the company.
In short, what is meant by revenue is the income a company has successfully received through its main operational activities. The amount of revenue does not include investment made by investors, but it will be reduced by the amount of the return value or discount if any. So, revenue can be interpreted as net profit from doing business activities in a certain period.
Meanwhile, income or profit is the profit the company gets. If revenue refers to the revenue that a company has successfully received, income is more likely to be the amount of its net profit.
Income can also be referred to as net income because the amount is the result of total income minus all costs of production. The production costs include operational costs, cost of sales, taxes, and so on.
Income also takes into account all additional income the company gets. This additional income can be in the form of accumulated interest from investments, funds from the sale of physical and intangible assets, and so on. So, calculating income seems more complicated than revenue.
What Distinguishes Revenue from Income
There are two points that can differentiate between revenue and income. The two points of distinction are:
Based on the source
Revenue is not only obtained from company sales. Instead, the yield or interest from deposits and investments is also included as a source of company revenue.
As for income, the source only comes from the business results. The results of the company’s sales of goods or services will be calculated as a whole and become the company’s income value.
Based on how to calculate it
In calculating revenue, the company only needs to add up the cost components or the revenue components. Meanwhile, in calculating income, the company has two methods, namely gross profit and net profit.
For gross profit, the way to calculate it is to reduce revenue by COGS or cost of goods sold. While net profit, the calculation is to reduce the total gross profit with indirect costs related to production. These indirect costs include taxes, promotional costs and other costs so that goods or services can be accepted by consumers.