Many people often consider ‘income’ as a synonym of ‘revenue’ since both terms refer to positive cash flow. Understanding the difference between revenue and income is extremely important for any business, particularly in terms of how total earnings are reported in accounting.
Let’s quickly dive deeper into these two terms.
Revenue is the total amount of income a company generates through selling its products or providing services that stem from its primary operation, minus returns and discounts.
Revenue, also known as gross sales, is a crucial indicator of financial statement analysis. Because it is displayed at the top of the income statement, it is often referred to as the “top line”.
Depending on a business’s primary activities, revenues are reported as sales, sales revenue, or net sales. For some businesses, such as manufacturing or grocery, most revenue is from the sale of goods. Meanwhile, service businesses such as law firms receive most of their revenue from rendering services. For other lending businesses such as banks or financial institutions, most of the revenue is generated from fees and interest.
However, many companies have other streams of income from investments or the sale of other assets. This money is not counted as revenue because it’s not produced by the company’s main business.
Income is the total earnings or profit after expenses (taxes and other deductions) are subtracted from gross revenue.
Income is also known as net income or “net profit” as it provides a full picture of cash flow in and out of your company.
In a financial context, income almost always refers to the bottom line because this value accounts for expenses.
Both revenue and income are useful indicators in determining the financial strengths of a business, but they are not interchangeable.