While trying to determine your net income, you might come across the term revenue, sales, or gross income. So what does revenue mean? Through revenue, we understand the income generated within a business from sales of products or services rendered. On the income statement, revenues will appear as sales, and they include deductions for returned merchandise as well as discounts for products or services.
Revenue = Price + Units sold
The revenue definition is the money that comes into a company from its business activities. As mentioned above, the term can be referred to as sales or gross income and is used to determine the price-to-sales ratio. It is also necessary for the accounting of the company's financial statement, but the type of accounting dictates how revenue is calculated. While the formula presented above is the basis for determining the revenue, that formula is influenced by the accounting method used.
The accrual method of accounting includes revenue that comes from sales made on credit for goods and services purchased by the customer. The cash flow statement will record the collection of money owed that has been paid through credit. Here we can think of credit cards that lead to transactions ending in a receipt that will later be exchanged into money.
The cash accounting method only takes into account sales as revenue when the payment is received. In this case, if a customer orders a product online and pays in advance, they will receive a receipt. That receipt is not accounted for as a sale until the payment is received, then the sale becomes revenue.
If you’re a REALTOR® and you’re wondering what is the meaning of revenue, you can take a look at your income statement. On the top line, you’ll see revenue, sales, or gross income. That is the income that your activity generated over that accounting period. From that value, your expenses are subtracted until you get to the bottom line, which is net income. When revenue is larger than expenses, you will get a profit, but if your expenses are larger than your revenue, you will experience loss. In order to increase profit, you will have to increase revenue and/or limit expenses.