Both the terms profit and revenue are widely used in the world of accounting; however, they differ from each other and also their calculation is done in different ways. Profit is defined as the benefits that arise out of business activities whereas, revenue is the money that is known to be generated through the sale of goods and services. Let us understand the difference between the two terms profit and revenue in detail.
Profit vs Revenue
The main difference between profit and revenue is that the former is defined as the benefits which arise out of business activities whereas, the latter is generated through the sales of goods and services. They also differ based on their types and the way they are calculated.
The term profit focuses on the amount which is related to income after all the money which matters is briefly listed. In larger companies, profit is not just for the owners but also for the holders of the share who place it in the business for improving the sales in future.
On the other hand, revenue is the income of the company brought by including the money obtained through sales of goods and services. The date of the revenue is put to use by the group of the company for developing blueprint of the pricing and set goals related to finances. It can also be used to generate the statements of other expenses.
Comparison Table Between Profit and Revenue
| Parameters of Comparison | Profit | Revenue |
| Definition | All the benefits arising out of activities related to business define profit | Revenue is the total money which is known to be generated through the sale of goods and services |
| Other names | Profit is also known by different names for example bottom line, net profit, net earnings etc. | It is also by other names such as sales, sale revenue, gross income, turn over etc |
| Category | Profit is shown in Income Statement | Revenue is shown in Trading Account |
| Mathematical formula | Profit = Total Revenue – Total Expenses | Revenue = Total Sales – Total Returns |
| Types | Gross profit Net profit Operating profit | Operating revenue Non – operating revenue |
What is Profit?
The net income which is concerned with the income statement defines profit. When income is separated from the expenses then it gives rise to profit. But the term profit has different meanings in different fields such as accounting, economics, property etc. In economics, it is used for defining two different things which are related to each other (normal profit and profit).
Concerning accounting, the term refers to the differences created between the purchase price and the cost of bringing goods to the market or selling area. Profit is also known by different names such as bottom line, net profit, net earning etc. For calculating profit at various levels, we subtract expenses from revenue.
One can define profit as the amount of income which will remains even after sorting all the account detail for all the expenses, debts or any other additional income streams. In big companies, profit is not only for the owners but is also for the other holders of the share who decide to put it back into the business for improving the sales.
What is Revenue?
Revenue is defined as the money earned by the work or investments that is captured into consideration before expenditure is brought into account and the money that is produced through exchange of objects which is generated through sales of goods and other services is also included in the list. No cost or expense is deducted under revenue which is associated with operating the business. It always includes the money which has entered the business. It is also known by different names such as sale revenue, gross income turn over etc.
It is used for describing the income which your business has generated before any expenses are subtracted from it. It is the amount that is earned through goods or services related to the company. There are different types of revenue such as operating revenue and non-operating revenue. It is used for describing the income which your business has generated before any expenses are subtracted from it.
It is the amount which is earned through goods or services related to the company. The mathematical expression used for calculating revenue is Revenue = Total Sales – Total Returns.
Main Differences Between Profit and Revenue
- Profit is considered to be a financial benefit always on the other hand, the money which generates through activities of business before the expenditure is subtracted from it is called as the revenue.
- Profit can be calculated with all the expenses of the account such as the salary, bills, insurances etc. whereas, revenue is concerned with the money that has entered in the business.
- For obtaining profit, one has to subtract all the expenses from revenue but for calculating revenue one has to subtract total returns from total sales.
- The different types of profit are net profit, operating profit and gross profit. On the other hand, different types of revenue are operating and non-operating revenues.
- The relationship of profit with revenue is that profit is dependent on revenue but revenue is independent of profit.
Conclusion
Profit and revenue are considered very important in any business so it becomes very important to understand the differences between the two in detail. Knowing the difference will help you to manage the finances of the company easily and make important decisions successfully. Profit is defined as the amount which is left after all of the costs of producing commodities that have been deducted and it can also be defined as a revenue less expense.
On the other hand, revenue can be recorded when it is earned for example while ordering something the revenue is recorded at that time only that is at the time of purchase itself and you pay for it when you receive it.
References
- https://journals.sagepub.com/doi/abs/10.1177/1094670513485823
- https://www.jstor.org/stable/1057481