How to distinguish between profit, revenue and income

Revenues, incomes and profits as financial terms are used in economics, accounting, and simply in everyday life. This is their similarity. The differences in accounting for funds and amounts of money that are implied by these concepts are much greater. The first and main difference is that profit is obtained after deducting all costs and expenses from revenue. Income is a deduction from the cost of production costs of goods or goods purchased.

How revenue is formed

Revenues consist of the amount of money received by an enterprise or firm from its activities (sale of manufactured goods or services, work performed) or indirectly received, for example, when investing in the development of a company.

The revenue that is formed from the amount of sales of goods or services is not necessarily real money in the account or at the cash desk. It is customary in the supermarket to pay for goods immediately. Even if you take the goods on credit, the bank will pay for it. At the enterprise or at the company, everything happens differently. Goods or products can be shipped with installment payment, with payment upon receipt. Or on an advance payment, which took place a few days before the actual shipment. Partial prepayment may also be made. Such options are often used in the provision of services.

That is, the time difference between the fact of the shipment of the goods and the receipt of payment for this goods can be significant, sometimes up to several years. Therefore, it is customary to take into account revenue “for shipment” or “for payment”. As is clear from the terms, the method of calculating revenue "on shipment" captures the time of shipment, vacation of goods or services. The fact of payment is not taken into account. The method of accounting for revenue "for payment" records the moment of payment for goods, services or work performed. Most often it is used in enterprises where cash is paid for goods or work, when the date of release of the goods coincides with the date of payment.

What is revenue

Income refers to revenue excluding (minus) material costs. In other words, income includes the profits of the enterprise and remuneration of labor without material costs for the production of goods or the provision of services.

Revenues are divided by main activities and other income. Activities are all that are produced or provided by an enterprise or firm. Other income may represent rental income if the entity leases part of its space. The calculation of income will include surplus stocks identified during the inventory, or late fees, or penalties collected from a partner in court.