Key Differences Between Revenue and Income
The differences between revenue and income can be understood by considering the fact that these terms depict two different aspects of a company’s financial health for any person associated with finance or business management.
While revenue and income are frequently used interchangeably, revenue and income are considered distinct financial measures representing different elements of profitability in the income statement of a company.
What is Revenue?
Revenue is sometimes called “gross sales” or “top-line.” This refers to the total amount that a business earns from its core operations- usually products and services subtraction of costs. Revenue is the top indicator of a firm’s overall sales activities and overall market demand.
For example, if a company sold 1,000 products at £10 each, then the revenues would be £10,000. Again, revenue comprises no cost incurred from production or sale. Also, it does not account for taxes paid to obtain revenues and expenses faced in the process of operation so does not depict the profits.
What is Income?
Income, often referred to as “net income” or “bottom-line,” is the profit a company makes after subtracting all expenses from its revenue. These expenses include costs of goods sold (COGS), operating expenses, taxes, interest, and other expenses.
Income provides a clearer picture of a company’s profitability and efficiency, as it accounts for both the cost of operations and external financial obligations. Using the same example, if the company with £10,000 revenue has £7,000 in total expenses, its income would be £3,000.
Key Differences
- Revenue vs. Profitability: Revenue indicates sales performance, while income shows profitability.
- Calculation: Revenue is calculated as total sales, whereas income is revenue minus all expenses.
- Position on Financial Statements: Revenue appears at the top of the income statement, whereas net income is the final figure.
Conclusion
In summary, while revenue is a measure of total sales, income reveals the true profitability of a business, reflecting the actual financial gain after expenses.