Savings, income, money, and many more such words are considered to be a very important part of every man’s life. Be it a small business or a big multinational company, a nuclear family, or a big joint family, money (income) is very important for a living (basic standard).
There are a few terms that are allotted to the total sum gained or lost by a company. It is very important to track the money to successfully run any business. Sales and revenue are a part of the accounting and are calculated now and then by a company.
Sales vs Revenue
The main difference between sales and revenue is that sales are the income generated by a company from selling their goods and services, whereas revenue is the income (of all activities) generated by a company before subtracting any expenses from the total calculation.
Sales are the proceeds generated from selling goods or services by a company to its customers. Sales are the subset of revenue. Sales usually occur when the company has the money to manufacture and sell it to their customers. The metric of the total sale of the company is called gross sales and is on the top of the income statement.
Revenue is the total income generated by a company before subtracting any expenses from the calculation. It can exist without sales. Revenue shows how resourceful and capable a company is in generating money (maximize it). In simple words, it is a culmination of all the sources of income of a company (investments, royalties, etc.).
Comparison Table Between Sales and Revenue
| Parameters of Comparison | Sales | Revenue |
| Definition | Sales is the income generated by a company from selling their goods and services to their customers. | Revenue is the income generated by a company before subtracting any expenses from the total. |
| Method of calculation | Sales are calculated by multiplying the total number of goods/services by their price. | Revenue is calculated by adding all the sales along with the other sources of income. |
| Indication | The company’s capability of selling its primary goods/service to gain profit. | It indicates the company’s ability to invest and allocate resources to maximize its profits. |
| Relation | Sales are a part of the revenue, and it directly or indirectly gets counted in the revenue. | Revenue can exist without sales. |
| Represents | That sales are a part of operating revenue. | Revenue is generated from both operating and non-operating activities. |
What is Sales?
The proceeds generated by a company after selling goods and services to their customer are known as sales. They comprise one component of the company’s revenue (total), and they are a subset of revenue. Sales can also be called the prices paid by the customers for a product/service.
Sometimes sales can be larger than the revenue. Sales are typically known as gross sales and can be found at the top of the income statement. If any merchandise is returned/discounted and is subtracted from the gross sale, we will get our net sale of a company (gross sale – returned/discounted = net sale). Sales are an indication that a company is capable of making a profit by selling and serving its customers with its primary goods/services.
In simple words, sales are any transaction done (including money) in exchange for a good or service. Sales are not considered until a product is delivered or the transaction is complete (based on the accounting). Double-entry booking – in this method, a sale is recorded as a debit to cash and a credit to a sales account. The actual monetary value of the transaction is recorded and not the list price of the merchandise.
Types of sale transactions include cash sales, credit sales, and advance payment sales.
For example – if the number of products sold by a company is 3000 and the price per piece is rupees 10, then the sale value is 30,000 rupees. (3000 x 10)
What is Revenue?
Revenue is the total amount of money generated by a company (including – sales, investment, etc.) before subtracting any expenses from it. It includes the outcome of sales. Revenue can exist without sales, as it is the aggregate of all the money in a specific period. Revenue indicated the ability of the company in investment and allocation of resources to maximize the earning potential.
Sales revenue/ operating revenue – the revenue received from the primary activities of the business.
Non-operating revenue – the revenue received from other sources.
The goods and services can have different revenues. In the income statement, the gross revenue appears on the top and is also called the ‘top line’. When all the other expenses are deducted from the revenue, we get the net income which is indicated in the bottom line of the statement. (Total revenue – expenses = net income)
For example – if a company’s sales are rupees 3000 and rupees 100 is the income generated by other means, then the total revenue of the company is rupees 3100 (3000 +100).
Main Differences Between Sales and Revenue
- Sales turn into and are a part of revenue, whereas revenue can exist without sales.
- Sales are the income received after selling some goods and services during a particular financial year, whereas revenue is the money generated by the company from its various other activities.
- Sales are the important source of revenue, whereas are revenue is the outcome of sales.
- Sales are calculated by multiplying the total number of goods/services sold with their price, whereas revenue is calculated by adding the sales with all the other sources of income( investment, royalties, etc.)
- Sales are a part of the operating revenue, whereas revenue is generated from both operating and non-operating activities.
- A sale represents the company’s ability to sell its products, whereas revenue represents the Company’s resourcefulness in generating money
Conclusion
Sales and revenue are sometimes mistaken to be similar; as sales are a major part of a company’s revenue, they use both of them as synonyms. Yes, it is a little confusing to draw a line, but it’s not that difficult. One should learn to read the income statement to understand and differentiate between revenue and income.
Sales and revenue both are important parts of the company’s success or failure. Any member of the company, be in the boss, manager, or investor, all need to learn the strategies (when and how to sell, invest, etc.) to earn gain/profit.
References
- https://www.jstor.org/stable/248507
- https://books.google.co.in/books?hl=en&lr=&id=GhdDbEM-_5oC&oi=fnd&pg=PR5&dq=revenue&ots=wJ0SXDv6NX&sig=fbISn2KinsyuegVuLyWbRniWzdk