Without realizing it, you might have heard someone misused some financial terms in daily conversations. For example, many people confuse or don’t know the differences between revenue and income.
The wrong use of the word between revenue and income causes confusion for young investors and entrepreneurs. Especially entrepreneurs and investors who don’t have a formal education in finance.
Revenue and income are two different things which each has its meaning. Most people often use these financial terms interchangeably, even in the wrong context sometimes. But it turns out that the definition of revenue is different from income in the concept of understanding.
So, What’s the Difference between Revenue and Income?
Revenue is a word that will usually appear at the very top of an income statement report. This report usually consists of the total amount of cash generated through the sale of products or services which are the main operational activities for a business.
The total revenue displayed is usually reduced by existing returns or discounts. In other words, revenue can be said as a net profit generated by business activities in a certain period of time.
For example, let’s say you are running a retail business. Your revenue will come from the total of sales over a certain period of time (usually calculated on a monthly basis). If you give discounts to your customers, then you can deduct the amount generated by the total discounts.
Apart from that, some types of businesses may also have alternative income sources from both investment and other asset sales. Such funds cannot be calculated as revenue because it doesn’t originate from the main operations of a business. So, you can input the total funds generated from the main operations in another section of the income statement.
So, what’s the difference between revenue and income? Isn’t income also the result obtained from the main operations of a business? Income or sometimes also called profit turns out that has a different meaning compared to revenue. In the context of finance, income almost always refers to net income.
Income is also called as net profit because the amount of an income can represent the total amount of cash left over from the original amount of income after taking all of the additional costs and additional income into account.
Existing costs include the cost of goods sold, operating costs such as rent, utilities, salaries, interest paid on debts, depreciation and amortization fees, tax costs; emergency fees due to extraordinary events such as lawsuits.
As for additional income, usually derived from some income includes interest accumulated on investments or funds derived from the sale of intangible assets or physical assets, such as equipment or bonds.
For example, if you have a restaurant that generates a net profit of $ 1,500 per day, then in one month you will get $ 1,500 x 30 = $ 45,000 net profit in a month.
Then you also need to pay a rental fee of $ 1,000 per month, the cost of raw materials is Rp 3,000 per month, along with the employee costs of 5 persons each of $2,700 per month.
If totaled; $ 1,000 + $ 3,000 + $ 13,500 = $ 17,500. Then, you can subtract the revenue earned with the costs incurred. So that $ 45,000- $ 17,500 = $ 27,500.
This total number is what we then call as income or net income obtained from a business that is run. It can then be added to several other alternative income sources as a form of income that can be received by the business owner.
To conclude the difference between revenue and income, revenue refers to the initial net profit obtained through the business operations carried out.
Meanwhile, income refers to the net income earned after the results of the profits obtained and reduced by the costs that must be paid during the running of the business in a certain period of time. The additional alternative sources can also be added to the income. I hope you can understand the difference between revenue and income.
Then, Which One Should You Invest, Revenue or Income?
If you already understand the differences between the revenue and income, you then certainly have the answer to that question in your mind.
If your answer is income, you are right. Through the income earned, it can then be transferred into a portion of an investment. This can be said as a way of doubling the income you’ve earned.
Investing your income will certainly make your money generates new revenue. If we talk about investments, there are now many ways to invest that absolutely work to make profits.