Revenue vs. Income: Meaning and Basic Differences in Business

Understanding the difference between revenue and income is crucial when you are running a business strategy.

Revenue and income are two terms that are often mixed up even though they are two different things.

As reported by Paddle, in business, revenue is the top line (income or total income from products or services).

Meanwhile, income is the bottom line (revenue minus production costs) so the difference between the two is clear.

Both revenue and income have important values ​​for a business.

Understanding the difference between revenue and income will help you understand the development and financial stability of the business.

What are the differences between the two? Read more below.

Revenue in Business

Quoted from Investopedia, revenue is the total income or income generated from the sale of products or services related to the company's main business.

Revenue in business is also known as gross sales or the amount of gross sales.

As previously explained, revenue is also called the 'top line' in business because it is at the top of the company's financial statements.

The revenue value is the income generated by a company before being reduced by any costs.

So, when a company or business experiences top line growth, it means that the company is experiencing increased sales.

A business can generate revenue from various sources, including but not limited to the following:

• sales of products, services, and assets;
• advertising;
• licensing agreements;
• payment for services;
• subscription fees; and
• rental income.

Income in Business

Income or net profit is the total income or profit of a company.

Usually when an investor or financial analyst talks about a company's profit, what is meant is the company's income.

Revenue and income are often equated because both are positive cash flows from a company.

In fact, income is the bottom line in a financial context, where the income value is at the end of the financial report after deducting all needs or expenses.

Quoting Business, a company's income can be negative if expenses exceed its final income during the period.

If income is negative, then the company is experiencing a loss. Income has two categories, namely gross income and net income.

• Gross income: total income recorded before taxes and expenses for the company are deducted.
• Net income: total net income after deducting the costs required to run the business. Net income describes the efficiency of a company in spending and managing their operational costs.

Differences between Revenue and Income

The main difference between revenue and income can be seen from how the two are defined.

Revenue is the total income or income from a company that comes from various sources.

Meanwhile, income or earnings is the final income value that arises from income minus expenses for running the business.

Well, these costs include taxes, rent, commissions, and production costs. A decrease in revenue is also known as a revenue deficit or income deficit.

Other differences that need to be understood between revenue and income are as follows:

1. Recording Section on the Report

If revenue is the top line, income is the bottom line. The purpose of this statement is the different revenue and income sections on the financial statement or income statement.

Revenue is considered the top line of total business income and income on the bottom line.

That is why even though they are closely related and intersect, revenue and income cannot replace each other's functions.

2. Calculation Differences

Although revenue is calculated by multiplying the total number of products and services sold by their price, income is calculated by subtracting expenses, costs, and taxes from all total income.

The Importance of Understanding the Difference Between Revenue and Income

Understanding the relationship and differences between revenue and income in business allows you to measure progress, analyze potential, and prepare the right business strategy.

According to Paddle, here is the importance of understanding the difference between revenue and income for your business:

1. Financial Statement

Understanding how to monitor revenue and income separately is the key to creating accurate and clear financial statements.

Be sure to calculate all aspects that will be included in revenue including investments that come into the company.

For income, it is necessary to pay attention to different expenses in each business area.

2. Financial Reporting

A good understanding of the difference between revenue and income also allows financial reporting to be more representative and effective.

Representative financial reporting is important for analyzing the profit and loss factors of the business being run.

This will also help you see better the potential and problems that need to be addressed immediately.

To understand financial reporting analysis well and produce representative reports, you can also learn by taking a Financial Analysis class.

prasmul-eli has a Financial Analysis class with instructors who are experts in their fields.

If you are interested in developing your skills, register for the class now!

3. Tax

Understanding revenue and income is also important for managing tax documents. The last income value or figure is the figure before tax.

You must understand the tax requirements and important steps to prepare the company's financial documents.

4. Investors

To get investors, companies do not only need revenue, because that is not enough to convince investors.

Understanding the dynamics and differences between revenue and income will help create and demonstrate a broader understanding of business operational efficiency to investors.

Don't let yourself not understand this before running a business, okay!

Understand the differences and develop an effective strategy for your business!