Unconsciously, many people usually misuse some financial terms in their daily conversation. The mistaken use of the word sometimes confuses young investors and early entrepreneurs.
Especially entrepreneurs and investors who do not have the basis of formal education regarding finance. One term that is already very familiar, but still very gray in its meaning is revenue and income.
Most people use this term very often interchangeably, but sometimes in the wrong context. This term does sound very similar, even from its meaning, but it turns out to be different in the concept of understanding.
Then, what is the difference between Revenue and Income?
Definition of Revenue
Revenue, a word that usually will always appear at the very top of the operating income statement. Usually, this consists of the total amount of cash generated through the sale of a product or service that is the main operational activities for a business.
The results of the revenue usually also reduced by returns or discounts. In other words, revenue is a net profit generated by business people in a certain period.
For example, you have a food business. Then, your revenue will come from total food sales over a certain time (usually calculated monthly). If you give a discount, then you can subtract the count generated by the total discount that you give to consumers.
Apart from that, sometimes some types of businesses may also have alternative sources of income from investment or other asset sales. However, you cannot calculate the fund as revenue because it does not come from the main operations of a business.
The total funds generated outside the main operation can be entered into other parts of the income statement.
Definition of Income
Income turns out to have a different meaning from revenue. In the financial context, income almost always refers to net income.
It usually refers as net income because the amount can represent the total amount of cash leftover from the original amount of revenue after taking into account all existing costs and additional income.
Existing costs include the cost of goods sold, operational costs such as rent, utilities, salaries, etc. Whereas for additional income, it usually comes from some income including interest that has accumulated on investments or funds that come from the sale of intangible assets or physical assets, such as equipment or bonds.
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