Difference Between Revenue and Income

In terms of concepts, they are entirely different. Nevertheless, they are two critical terms that are useful in determining a company’s financial strength.

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  • Revenue is the total money generated by selling a company’s goods or services.Income can be deduced by subtracting the total expenses from the total revenue generated by the company.

They can be found in the same financial statement, i.e., the income statement. But the income is a subset of the revenue, whereas the revenue is the superset of the income.

We start the income statement with gross sales and then deduct the sales return or discount. And we get net sales. Then, from net salesNet SalesNet sales is the revenue earned by a company from the sale of its goods or services, and it is calculated by deducting returns, allowances, and other discounts from the company’s gross sales.read more, we deduct all the expenses (including the operating costs) and get the income.

Example

Let’s say that ABC Company has sold 3000 products for $20 each. So, the total revenue generated is $60000.

Now, let’s say that ABC Company’s total costs include the operational costs (salaries and wages, upkeep of machinery, security, the expense for raw materials, etc.), depreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more, and capital of about $48000. Then the total income or net income will be ($60000 – $48000) = $12000.

  • The income, for example, shows how well the company utilizes its resources and reduces its expenditure and operational costs to increase its income effectively.On the other hand, revenue only shows us how many products the company has managed to sell and the prices at which they are sold but doesn’t depict the utilization of resources in an efficient way.

Revenue vs. Income Infographics

Key Differences

  • To a layman, revenue and income may sound synonymous, but they’re entirely different. Revenue is when a company receives a “consideration” while selling products/services. On the other hand, when we deduct the cost from the revenue, we get the income.Revenue can be calculated by multiplying the number of products sold by their selling price. In contrast, income can be generated by deducting the total expenses from the total revenue. We also need to consider that to find out the net income; we also include income from other sources (sales of scraps, profit on the sale of machinery, etc.).Another term for revenue is “top line,” which means it is at the top of the company’s financial statements. Whereas another term for income is “bottom line,” which means it is present at the bottom line of the company’s financial statements.They are both involved in the production cycle. “Revenue” is the starting point of “income,” whereas “income” provides the monetary cash flowCash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more to produce the next cycle of production and thereby creates revenue.

Comparative Table

Final Thoughts

In simple terms, there’s a huge difference between revenue and income. Even if many people use them interchangeably, if you ask an individual who has studied finance, she would tell you that revenue is a big picture. In contrast, income shows the financial direction of a company.

Since the income statementIncome StatementThe income statement is one of the company’s financial reports that summarizes all of the company’s revenues and expenses over time in order to determine the company’s profit or loss and measure its business activity over time based on user requirements.read more is one of the four statements that every investor should look at, you should check both revenue and income. It may so happen that a company earns huge revenues but doesn’t generate any income (rather than loss). What if you just equate the revenue and income? What would you say in this case?

Like income, even loss would come after deducting all the expenses from the company’s revenue. If the total expenses exceed the total revenue, we will get a loss.

Revenue vs. Income Video

This article has been a guide to Revenue vs. Income. Here we discuss the top differences between Revenue and Income with an example, infographics, and a comparison table. You may also have a look at the following articles for gaining further knowledge in Basic Accounting –

  • Formula for Recurring RevenueRevenue vs. TurnoverOrdinary IncomeCompare – Revenue vs. Net Income