The term revenue basically refers to income that the business earns from its business activities of selling various goods and services. The price that the company sells its products to clients should be able to cover the cost of production and give the business the desired profit margin. Another term for revenue is turnover or sales. However, the organization should not necessarily generate its revenue by selling goods and services some enterprises earn their revenue from interests, fees, and royalties. The company calculates its revenue at the end of the financial period and compares it with the expenditure to determine if the business is recording a profit or loss. The following formulae is used to calculate the net income;
One of the most important facets on the future of an entity is profitability and this is why it appears at the top section of the company’s income statement. Profit oriented organizations have several sources of revenue but the non-profit organizations or NGOs have different income sources. You have to write annual revenue as gross receipts and this should also include the donations that come from individuals or companies, government agencies, revenue that comes from activities that are done for the mission of the organization, and fundraising just to name a few.
There are three types of revenue
1. Operating Revenues
This refers to the type of revenue that comes from the major business operations and activities through the selling of their goods and services or scraping up fees or giving interests on the things that the company produces.
2. Non-operating Revenues
Refers to the form of revenue that are different from the direct income sources but come from the various side activities that the business operates. Some of them include the generation of interests, royalties, revenue from rent, and the fees that the company charges.
Here are some of the various kinds of revenue accounts that you can find in the income statement
1. Revenue Account or Sales Account or Fees
This is the first-hand revenue account that records the primary income amount. Most businesses and companies refer to the revenue account depending on their requirements such as the fees they earned and service revenue among others.
2. Rent Revenue
This account records the main company’s interests that the enterprise earns over the financial period. Some organizations or firms include their revenue in the section of interests that are come from the provision of their services to customers or when they lend out some form of monetary help.
3. Dividend Revenue
The company normally records the dividends that it has earned from the stocks of other listed companies in this account. The dividends are normally jointly earned by the same business enterprise. If your firm has bought shares in another company that pays out dividends, it is normally considered as non-operating. It is one of the best sources of revenue for the company.
4. Interest Revenue
You record interest revenues that the firm earns in this account. Any enterprise that holds interest earning investments considers it as non-operating revenue. A good example is the debt owed. Some businesses have the interests as the main income sources.
5. Sales Returns
Some clients may return some goods because they are defective or for any other reasons. You record these transactions in the sales returns account and this is a contra sales account. It basically serves the purpose of consumer orientation.
6. Sales Discounts
This account is designed for recording the discounts that the company gives to its clients on the gross amount.
Here are some of the important terminologies that are associated with income and revenue statement;
· Operating Profit = Net Sales Less Cost of goods sold
· Net Profit = Operating Profit Less tax and Less Interest
· Net Profit = Net Sales less cost of goods sold less operating expense less taxes less interest
· Net Sales = Gross sales less customer discounts, allowances and Returns
· Operating Profit = Gross Profit Less Total Operating Expenses
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