Accounting terms

Dictionary of all accounting terms

What is Revenue?

Revenue is essentially the amount of money a business receives for a specified period. It is calculated by multiplying the price for the goods or services by the number of units sold.

Revenue can also include the discounts and deductions for any returned merchandise during the same period. Revenue can be thought of as the 'gross income' that costs are subtracted from to determine net income or profit.

Any money that is brought into a business from its business activities is considered revenue, which is also commonly known as 'sales.'

Revenue can be calculated for a specified period (monthly, quarterly or yearly) with different results using either the cash or accrual accounting method.

With cash accounting, the revenue is only recorded if the payment has actually been received. With accrual accounting, on the other hand, revenue is recorded for sales made on credit if the goods or services have been delivered.

Revenue can be divided into a few categories, including operating revenue and non-operating revenue.

Operating revenue is the majority of revenue, as it is all the money the company earned from its core business. Non-operating revenue is any money earned through secondary sources. This may include asset sales, investments or money awarded in litigation.

For investors, revenue and net income (profit) are looked at separately to analyze a company's health, as these numbers may move differently. For example a company through effective cost-cutting methods may increase net income, but their revenues remain stagnant. While an increase in net income is good, stagnant revenue may signal trouble with the company's long-term growth.

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