Revenue Definition – “The first line on an income statement, indicating the value of goods or services delivered to customers during the period of time covered by the statement”. Also called as sales.
In simple words, revenue is the amount that the organization earns from the good and services produced by it during a certain period of time. It appears on the first line of the Income statement. Sometimes it is also known as sales. It also includes discounts and sales returns.
Revenue is calculated by multiplying number of units of goods and services sold with the price of unit. When it comes to accounting of revenue, it is recorded either on accrual or cash basis. In case of accrual basis, revenue is recognized when goods or services are shipped or delivered to the end consumers. On the other hand, in case of cash basis of accounting, revenue is organized when cash is received from the customers.
Formula of Revenue
Revenue = No. of unit sold × price of the units
To understand the Revenue definition more clearly, let’s have a look over a simple example. ABC Ltd is a ready- made garment manufacturing company. It sold 10,000 units of jeans @ Rs. 400. Out of which 25 units are returned due to some defect. Calculate the revenue earned from this transaction.
Revenue = 10,000 × 400
Related Financial Terms of Revenue
- Net Profit Margin Definition | Meaning | Importance | Examples
- Sales Definition – Meaning and Examples
Accounting of Revenue
There are different methods of calculating. If company is following the accrual basis of accounting, then the goods sold on credit also includes in revenue. However, if the organization is adopting the latter, then the revenue is calculated when there are cash receipts.
Investors see revenue and net income separately. It is possible that revenue is stagnant but the profit margin is comparatively increasing. This is because of the cost cutting on the behalf of the management.