If you’ve studied business or finance, you might be well aware of the terms revenue and income. But if you haven’t, this blog post is especially for you. Many people consider them interchangeable terms, but they aren’t. Though they are directly proportional to each other, yet they are different. As in most cases, when your revenue increases, your income also grows and vice versa. Curious to know the difference between revenue and income. Keep reading the blog till the end.
While starting a business, you can’t be an accountant overnight, but you need to maintain your business records. Therefore, these are the key terms you need to know before establishing a business for managing your business finances.
If you’re unable to manage your business finances yourself, let us know for help!
Difference Between Revenue and Income:
Though, both terms show the financial strength of your business. However, they can’t be taken as a substitute for each other. Revenue is the total amount you receive without calculating the expenses. Whereas income shows the total profit after deducting all business expenses. This difference implies that both terms are not the same. For this reason, you need to know the difference between revenue and income. So, let’s find out the difference:
What is a Revenue?
The amount of money that you receive on the sale of your products and services (the company’s main operation) is known as “Revenue”. As a result, it is called a top-line income. An increase in your business revenue is referred to as top-line growth. The basic formula for calculating revenue is:
Units Sold x Price of products or services = Revenue
What is an Income?
“Income” is determined by taking revenue and deducting the total capital and operational expenses of a business including assets’ depreciation, taxes or interests, etc. The amount you get after it is known as net income. It is also known as bottom-line income. It determines how efficiently you have managed your business expenses for its growth. The formula of income is:
Revenue – Expenses – Depreciation = Income
Suppose you have a grocery store that has earned around £3 million in 2020 by selling different items. Its revenue for that year would be £3 million. Afterward, both operational and capital expenses including the rent, utility bills, transportation cost, machinery, and employees’ salary will be deducted from the total revenue to know the net profit. Let’s say the cost of all expenses was £2 million. The remaining amount would be net profit or income.
Quick Wrap Up:
Hopefully, now you know the difference between revenue and income. But if you’re willing to start a business, this basic information would not suffice. You need proper assistance from an expert for business or financial advice.
You don’t need to go anywhere as Accotax is here for this purpose. Our chartered accountants in London have served thousands of individuals and businesses in the UK that are expanding with our support.
Contact us anytime to know what we can do for you!
Disclaimer: This blog is just for your basic understanding to differentiate between revenue and income.