As part of OnlineAdvisor’s efforts to educate, inform and encourage business leaders, we present key financial terms and concepts.  Within the fundamental concepts of financial literacy and reporting is the concept of revenue.  This topic is very important for every organization, especially in the light of profits and income.

Definition

Revenue is money earned by an organization.  Another name for it is “income.”  In most cases, sales transactions with customers are the main sources.  In simple terms, the money we make selling our goods and/or services is the best example.

Different Kinds of Revenue

Examples of these accounts include: Sales, Service, Fees Earned, Interest, and Interest Income.  Most businesses set up simple systems for organizing and and tracking income.

For tracking purposes, it is possible to break out basic categories into sub-categories in particular areas.  Product and service lines are common examples where companies choose to track specific sub-categories.  Because of the importance for giving bonuses and other ways to pay money for good work by employees, we use sub-categories.

Let's talk about the different kinds of accounting systems and how they affect this topic.  What we call “accrual accounting” requires us to post all sales, even if payment hasn't been given to us.  They include all sales made “on credit”.  Goods and services delivered to the customer post on the books as revenue.  It is necessary to check the cash flow statement to track how efficiently a company collects on unpaid invoices for its customers.

Cash accounting, on the other hand, counts sales at the time of payment.  Cash paid to a company for a product or service posts as a “receipt”.  Note that it is different from revenue.  You can create receipts without counting it as income.  As the customer pays ahead for a service or goods delivered in the future, this activity leads to a receipt.  It does not post as revenue.

A company's revenue goes into categories for the divisions that generate it.  With this in mind, it is either as operating revenue or as non-operating revenue. Operating income includes sales from what a company does on a daily basis.  Non-operating income comes from other sources or other opportunities to make money.