The terms “Income” and “revenue” determine the financial strength of a business, individual, or country. Income refers to the net earnings after deducting all the expenses of a company, enterprise, individual, or country during a financial year. Revenue, on the other hand, refers to the total or gross earnings, without deducting expenses of the same.
Income vs Revenue
The main difference between income and revenue is that income is calculated by subtracting all the depreciation, interest, taxes, and other expenses of a business from its total revenue of that year. And, Revenue is the sum total of all the earnings of a business during a financial year.
The Income of a company refers to the profit earned by it after deducting all the costs and expenses of a financial year. It is also known as “Net profit”, “Net income”, or “Bottom line” of a company’s financial statement. It shows the full image of a company’s cash flow, as it also includes all the expenses.
The Revenue of a company refers to the total earnings of a company generated by its daily operations, i.e., the sale of goods or services provided. It is also known as “top line” or “gross sale” in a company’s financial statement. It does not show the actual financial condition of the business.
Comparison Table Between Income and Revenue
| Parameters of comparison | Income | Revenue |
| Meaning | Income is the net profit earned by a business by selling goods or providing services after deducting the operating expenses in a financial year. | Revenue is the total earnings without deducting any expenses of a business through selling products or providing services. |
| Calculation | Calculated by subtracting Total cost (operating and other expenses) from Total Revenue. | Calculated by adding all the profits and gains of the year, or by multiplying the number of goods sold by its price. |
| Position on financial statement | Bottom Line | Top Line |
| Dependent on | Revenue and expenses of a financial year | Sales or production of goods and services during a financial year |
| Size | Less than revenue | More than income |
What is Income?
Income is the total earnings of a household, individual, or business excluding all their expenses in a certain amount of time. In a company, it is the net profit of the company in a financial year.
It is calculated by subtracting the total cost or expenses of a company in a financial year from its total revenue.
- There are overall 3 types of income:
• Active Income – When the income is earned by working for a certain amount of time, it is called active income. Ex- Wages, Salary, tips, commissions etc.
• Portfolio income – When the income is earned by profit from investments, then it is called portfolio income. Ex- Dividend, Interest, Royalties etc.
• Passive Income– When the income is earned by businesses or activities in which we are not actively involved, then it is called passive income. Ex- Rent, Lease, profit from a partnership business etc. - The Net income of a company displays all of its gains and losses as all the expenses and losses are deducted from the total profits. Hence, it is presented at the bottom of the income statement or financial statement of a country.
What is Revenue?
Revenue is the total amount of income generated by a company by the production of goods or services in a financial year.
It is calculated by multiplying the total number of products sold by a company with the price of each product, or by calculating the total amount earned by providing certain services by a company or individual.
- There are mainly 2 types of revenues-
• Operating Revenue-It is the revenue that a business earns by doing its core activities of the business. For example Sales revenue, service revenue.
• Non-operating revenue– It is the revenue that a business earns by activities other than its core operational activities. For example Interest revenue, Rent revenue. - Revenue can also be classified in terms of economics as-
• Total Revenue –Total Revenue is the sum of all the income, receipts, and sales of a firm. It is also multiple for price and output.
• Average Revenue –Average Revenue is the revenue earned by selling per unit commodity of a product.
• Marginal revenue–Marginal Revenue is the revenue earned by selling an additional unit of the commodity. It is also referred to as the change in the total revenue when an additional unit is sold.
Main Differences Between Income and Revenue
The main difference between Income and revenue is that. When a company earns something, it is called revenue, and when the cost and expenses of production and selling process are deducted from the revenue, it is known as Income.
- Income is Net Value, whereas, revenue is a Gross value.
- Income shows the actual profit or earnings of a company, individual, or household. While Revenue does not show the accurate profit of the company, it just shows the gross value earned by it.
- Income excludes all the operating expenses of a company in a certain period. On the other hand, Revenue includes all the operating expenses of a company for a certain period
- Income can be calculated by subtracting the total expenses from the total revenue. On the contrary, revenue can be generated by multiplying the number of products sold by their selling price. Income from other sources, such as sales of scraps, profit on the sale of machinery, and other miscellaneous incomes are also included in the net income.
- Another term for income is “bottom line,” which implies that it is at the bottom of the company’s financial statements. And, Revenue is also known as “top line,” which means it exists at the first line of the company’s financial statements.
Conclusion
Although people tend to use these terms interchangeably, there is a huge difference between income and revenue. The scholars of economics, finance, and accountancy are easily able to differentiate between the two.
Revenue shows the big picture of a company, but income shows the real picture of a company. In the financial statements of many businesses, one can notice that they may have a large amount of revenue but the figure of their income is near to loss. Because after deducting all the expenses, the true income might be very different.
References
- https://www.tandfonline.com/doi/abs/10.1080/17449480.2012.664395
- https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/conlr25§ion=9