Revenue

Revenue is income that arises from a business’s ordinary activities, such as selling goods or providing services.

Revenue is often called sales, turnover or operating income, although the labels used in a report depend on the business and accounting framework. It is the top-line activity from customers before related costs and expenses are deducted.

AASB 15 defines revenue as income arising in the course of an entity’s ordinary activities. That distinguishes revenue from owner contributions, borrowings and some gains that do not come from normal trading.

Where Revenue Appears

You will usually see revenue in:

• the profit and loss statement
• sales and customer reports
• the general ledger
• invoices and accounts receivable
• GST, VAT or sales-tax reports
• budgets, forecasts and margin analysis
• subscription and deferred revenue schedules

Revenue accounts may be separated by product, service, location or channel so a business can understand where its ordinary income comes from.

Revenue Is Not The Same As Cash Or Profit

Under accrual accounting, revenue and cash can occur at different times. A business may record revenue when it provides a service and invoice the customer, then collect the cash later. Money collected before the business has provided what it promised may first be recorded as a liability rather than immediate revenue.

Under cash accounting, sales are generally recorded when payment is received. The method used for bookkeeping, tax and formal financial statements can differ, so the purpose of the report matters.

Simple Example

A design studio completes a $4,000 project on 28 June and gives the customer 14 days to pay. Under accrual accounting, the studio records $4,000 of revenue and $4,000 in accounts receivable when the work is completed and invoiced.

When the customer pays in July, cash increases and accounts receivable decreases. The payment does not create another $4,000 of revenue.

How Revenue Reaches The Profit And Loss Statement

The Government’s profit and loss guide describes a P&L as a report of sales and expenses. Revenue is normally shown before cost of goods sold and operating expenses, allowing the report to calculate gross profit and then net profit.

Refunds, discounts, credits and sales returns may reduce gross sales to arrive at net revenue. GST, VAT and similar amounts collected on behalf of a tax authority are generally not the business’s revenue.

Why Revenue Matters

Revenue trends help a business assess demand, pricing, customer concentration and growth. Comparing revenue with direct costs shows gross margin; comparing it with all expenses shows whether the business is profitable.

Revenue alone does not show financial health. Owners should review it with cash collection, margin, expenses, receivables and the balance sheet.

Common Revenue Mistakes

• recording a bank loan or owner contribution as revenue
• counting an invoice and its later bank deposit as two sales
• treating GST or VAT collected as business income
• recognising all customer deposits immediately without checking what has been delivered
• leaving credit notes, refunds or sales returns out of the revenue total
• comparing cash-basis and accrual-basis reports as though they use the same timing

How Gimbla Can Help

Gimbla connects customer invoices, credit notes, payments, bank reconciliation and the general ledger. That makes it easier to trace reported revenue to sales activity and avoid counting customer cash twice.

Consistent products, accounts and tax codes also help split revenue into useful categories without maintaining a separate spreadsheet.

Related Terms

• Revenue Recognition
• Deferred Revenue
• Profit And Loss Statement
• Accounts Receivable
• Gross Profit Margin
• Credit Note

Helpful Gimbla Guides

• Profit And Loss Guide
• Invoice Total Amount Due
• Managing Invoices And Payment Reminders

In Short

Revenue is income from ordinary business activities. It is not automatically the same as cash received or profit, so timing, credits and the accounting method must be understood.