Revenue, income and profit as financial terms are used in economics, accounting and just in everyday life. This is their similarity. The differences in accounting for funds and amounts of money that are meant by these concepts are much greater. The first and main difference is that profits are obtained after deducting all costs and expenses from the proceeds. Revenue is the deduction from revenue of the cost of goods manufactured or purchased goods.
How revenue is generated
Revenue consists of the amount of money received by an enterprise or a firm from its activities (sale of manufactured goods or services, work performed) or received indirectly, for example, when investing in the development of the company.
The revenue, which is formed from the amount of the sale of goods or services, does not necessarily have to be real money in the account or in the cash register. It is customary in the supermarket to pay for the goods immediately. Even if you take the goods on credit, the bank will pay for you. In an enterprise or a firm, everything happens differently. Goods or products can be shipped with payment by installments, with payment upon receipt. Or prepayment, which took place a few days before the actual shipment. Partial prepayment can also be made. Such options are often used in the provision of services.
That is, the time difference between the fact of shipment of goods and receipt of payment for this product can be significant, sometimes up to several years. Therefore, it is customary to take into account the proceeds "on shipment" or "on payment". As is clear from the terms, the method of calculating revenue "by shipment" fixes the moment of shipment, release of goods or services. The fact of payment is not taken into account. The method of accounting for proceeds "by payment" fixes the moment of payment for goods, services or work performed. Most often it is used in enterprises where cash payments are made for goods or work, when the date of issue of the goods coincides with the date of payment.
What is income
Income means revenue excluding (less) material costs. In other words, income includes the profit of the enterprise and wages without material costs for the production of goods or the provision of services.
The income is divided by the main types of activity and by other income. Activities are everything that is produced or provided by an enterprise or firm. Other income may represent rental income if the entity leases out a portion of its premises. The calculation of income will include surplus stocks identified during inventory, or late payment penalties, or penalties levied from a partner in court.
What is profit
Profit is defined as the difference between revenue and all expenses of the enterprise or firm. There may or may not be profit. If the revenue is less than the company's expenses after all payments, then the company will have losses. The formula for determining profit is simple. The cost of goods or services and income taxes are deducted from revenue. The cost, in turn, consists of material costs and wages.
An enterprise or firm may deliberately give up part of the profit at some stage of its activity in order to enter new sales markets or promote new products, get rid of a slow-moving product or in the course of competition. Often, at the stage of growth and expansion of a business, they deliberately give up profit for the sake of future prospects.
