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Revenue vs. Profit

ayaq

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Revenue vs. Profit



Income

Revenue is often referred to as the first line because it is at the top of the income statement. The revenue number is the revenue that the company receives before the costs are deducted.





For example, in a shoe retailer, the money he earns from selling shoes to accounting for any expenses is his income. If the company also has income from investments or a subsidiary, this income is not considered income; it doesn't come from selling shoes. Additional income streams and different types of expenses are accounted for separately.



Profit

Also called the total, profit is called net income in the income statement. In the income statement, there are variations in profit that are used to analyze the company's performance.



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However, there are other rates of return between the top line (income) and the bottom line (net profit); the term "profit" may arise in the context of gross profit and operating profit. These are steps towards a net profit.



Gross profit is the income less the value of goods sold (COGS), which are direct costs associated with the production of goods sold in the company. This amount includes the cost of materials used to create the product, as well as the direct labor costs used to produce the product.



Operating income is gross profit less all other fixed and variable costs associated with doing business, such as rent, utilities and payroll.

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Example: Income versus profit

Below are the figures and part of the 2017 profit and loss statement for J. C. Penny. These figures were reported in the annual report for 10 thousand, which closed on February 3, 2018.



Revenue or total net sales = $ 12.50 billion

Gross profit = $ 4.33 billion (total revenue $ 12.50 billion - COGS $ 8.17 billion)

Operating profit = $ 116 million (less all other fixed and variable costs associated with doing business, such as rent, utilities, and payroll)

Profit or net profit = - 116 million USD. USA (loss) 1

The main differences

When most people refer to the company's profit, they do not mean gross profit or operating profit, but rather net profit, which is the balance after expenses, or net profit. The company can make a profit, but have a net loss. We see that JK Penny suffered a loss of $ 116 million, despite a profit of $ 12.5 billion. Losses usually occur when debts or expenses exceed profits, as in the case of J. K. Penny.



Special considerations

Accrued revenue is the same as unrealized revenue. Accrued revenue is the income earned by a company for the delivery of goods or services that have not yet been paid by the customer.



For example, the company sells widgets for $ 5 each on a net-30 basis to all its customers, and in August sells 10 widgets. Because he invoices his customers on a net 30 basis, the company's customers will only have to pay in 30 days or on September 30. As a result, revenue for August will be considered accrued revenue until the company receives payment from the customer.

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In terms of accounting, the company recognizes $ 50 of income in its income statement of $ 50 as an asset on its balance sheet. When a company collects $ 50, the cash account in the income statement increases, the accrued income account decreases, and the $ 50 in the income statement remains unchanged.



It is important not to confuse accrued income with unearned income; unearned income can be perceived as the opposite of accrued income.

Unearned income is money paid by the customer for goods or services that were not delivered. If a company requires a prepayment for its goods, it recognizes revenue as unearned and will not recognize revenue in its income statement until the period during which the goods or services were delivered.
 

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