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What Exactly Is Revenue?

The money created from typical business operations is computed as the average sales price times the number of units sold, and it is referred to as revenue on the income statement. It is the top line (or gross revenue) statistic from which net income is calculated by subtracting costs.

Deeper Definition

Revenue is the money generated by a company’s operations. Because revenue comes first on a company’s income statement, it is referred to as the top line. Revenues minus costs equal net income, commonly known as the bottom line. When revenues surpass costs, a profit is made.

Depending on the accounting technique used, revenue can be calculated in a variety of ways. Sales made on credit will be recorded as revenue for products or services provided to the client under accrual accounting. A corporation raises sales and/or cuts expenditures to improve profit and hence earnings per share (EPS) for its shareholders. When assessing a company’s health, investors frequently look at its sales and net income separately. Because of cost-cutting, net income might rise while sales stay flat.

Operating revenue, sales from a company’s primary business, can also be separated from non-operating revenue, which comes from other sources. These non-operating revenue streams are sometimes referred to as one-time occurrences or gains since they are generally unforeseen or nonrecurring.

Revenue Example

Assuming you have a company you run that deals in shoes and on a particular day, you sell 500 pairs of shoes at a price of $50 for one. Your revenue will be 500 units multiplied by $50 which will be equal to $2500. That is how to calculate the revenue for fixed-priced goods. On the other hand, if the goods you sell are not of a fixed price, you will need first to calculate the average price of the total number of goods sold before multiplying it by the total amount of units. If, for example, you sold ten shoes and you are yet to be paid, your revenue will be the average amount you sold the shoes multiplied by the total units of shoes sold.

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