Revenue is the total amount of money that you received from the selling of goods, products, and any other service during the time shown in the income statement. Another definition of revenue is the money received until the cost of selling products before tax and deducting, so Revenue is the gross amount of money earned from the business.
Revenue is also the same meaning of income. Revenue is the profit generated by a company when it provides a customer with a service or a product.
Earnings are the net amount of money or profit that you received after the cost, expenses, losses, and the deduction, it’s called also net profits.
How are revenue and earnings similar?
Companies and investors use revenue and earnings to determine a company’s health, growth, and performance. These estimates indicate how much money the organization has gained.
Organizations use revenue to calculate income by excluding all costs from sales.
What is the difference between revenue and earnings?
While both revenue and earnings provide an idea of the money that the business had received. There is a specific application of this information. Revenue indicates the quality of a company’s profit such as how much money they can gain from the profit, how many customers they have, and how their sales increase from month to month or from quarter to quarter.
Formula: Revenue and Earnings
- Revenue is calculated as the number of goods of units (or products) sold * price per unit.
- Earnings are the amount remaining after taking out the expenses or the amount of depreciation of the underlying asset.
Revenue – Expenses = Earnings
assuming the expenses are less than revenues, the company will have a profit.
Comparison between revenue and earnings
Other investors or other potential stakeholders want to check the sales or earnings of a company to decide whether the business is successful or not.
Consider these considerations when comparing revenue and profits, and when determining what to figure to evaluate:
1–Definition: Revenue is the total amount of money but the earnings are the remaining of the total after expenses and deduction.
2-Measurement: Revenue calculates how much revenue a company will produce while earnings calculate the profits from the business after expenses.
3–Use: Revenue is used to calculate sales but earnings are used to calculate the income.
4–Calculation: Calculate the revenue by adding all the sources of the income but we calculate the earnings by subtracting the revenue from expenses and deduction.
5–Impact: A high level of revenue shows more profits and the company’s inflow, while a lower level of revenue indicates less profit and less inflow. A high level of earnings shows good profits or losses, whereas low income shows weak benefits.
6–Preference: In general earnings are the preferred factor for accounting purposes as they show for both income and expenses.
What are the steps for Revenue process?
1-Top line: Revenue is also called ‘top line’ because it stays at the top of the income statement of your company. The top line refers to the income or gross profits from your company. If your company has top-line success that means you‘re selling more than of your goods or services.
2–Calculating revenue: Revenue is measured at the end of the accounting period which is usually monthly or yearly. You have to add the money that you earned to measure the company’s income.
3-Balance sheet: The income will impact the balance sheet, a balance sheet is a financial statement that gives you an overview of the assets and liabilities of your company, as well as the sum that your shareholders have invested. If the payment terms of your business are cash only then your profits will produce a corresponding amount of cash on your balance sheet.
Types of Revenues
The operating revenues are generated from the core business activities of your company. Operating revenues such as Sales, Rents & Consulting services.
They are derived from the activities that are not related to the core business of the company (e.g. interest revenue and Dividend revenue).
The Bottom Line
In their respective terms, revenue and earnings are both crucial. And they are both related to the company’s inflow of cash or liquidity, which helps the company decide whether it has profits or losses after calculating net income and net earnings.