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Definition of Revenue

Revenue Image 1


Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term sales.


An inflow of cash, accounts receivable, or barter from a customer in exchange
for the provision of a service or product to that customer by a company.


Income earned from the sale of goods and services.

Related Terms:

Fictitious Revenue

revenue recognized on a nonexistent sale or service transaction.

incremental revenue

the revenue resulting from an additional contemplated sale

Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.

Internal Revenue Code

Refers to all federal tax laws as a group.

Internal Revenue Service

A federal agency empowered by Congress to interpret and enforce tax-related laws.

Revenue Image 2

NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)

Premature Revenue

revenue recognized for a confirmed sale or service transaction in a period
prior to that called for by generally accepted accounting principles.

Realizable Revenue A revenue transaction where assets received in exchange for goods and

services are readily convertible into known amounts of cash or claims to cash.

Realized Revenue

A revenue transaction where goods and services are exchanged for cash or
claims to cash.

Revenue bond

A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.

revenue center

a responsibility center for which a manager is accountable only for the generation of revenues and has no control over setting selling prices, or budgeting or incurring costs

revenue-driven expenses

Operating expenses that vary in proportion to
changes in total sales revenue (total dollars of sales). Examples are sales
commissions based on sales revenue, credit card discount expenses, and
rents and franchise fees based on sales revenue. These expenses are one
of the key variables in a profit model. Segregating these expenses from
other types of expenses that behave differently is essential for management
decision-making analysis. (These expenses are not disclosed separately
in externally reported income statements.)

Revenue fund

A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.

Revenue Recognition

The act of recording revenue in the financial statements. revenue should
be recognized when it is earned and realized or realizable.

Revenue Image 3

Sales Revenue Revenue recognized from the sales of products as opposed to the provision of


Service Revenue

revenue recognized from the provision of services as opposed to the sale of

Total revenue

Total sales and other revenue for the period shown. Known as "turnover" in the UK.

Unearned revenue

Money that has been paid by customers for work yet to be done or goods yet to be provided.

Unearned revenue

A payment from a customer that cannot yet be recognized as earned
revenue, because the offsetting service or product for which the money was paid has
not yet been delivered.

Accounts Receivable Days (A/R Days)

The number of days it would take to collect the ending
balance in accounts receivable at the year's average rate of revenue per day. Calculated as
accounts receivable divided by revenue per day (revenue divided by 365).

accounts receivable turnover ratio

A ratio computed by dividing annual
sales revenue by the year-end balance of accounts receivable. Technically
speaking, to calculate this ratio the amount of annual credit sales should
be divided by the average accounts receivable balance, but this information
is not readily available from external financial statements. For
reporting internally to managers, this ratio should be refined and finetuned
to be as accurate as possible.

Accrual accounting

The recording of revenue when earned and expenses when
incurred, irrespective of the dates on which the associated cash flows occur.

accrual-basis accounting

Well, frankly, accrual is not a good descriptive
term. Perhaps the best way to begin is to mention that accrual-basis
accounting is much more than cash-basis accounting. Recording only the
cash receipts and cash disbursement of a business would be grossly
inadequate. A business has many assets other than cash, as well as
many liabilities, that must be recorded. Measuring profit for a period as
the difference between cash inflows from sales and cash outflows for
expenses would be wrong, and in fact is not allowed for most businesses
by the income tax law. For management, income tax, and financial
reporting purposes, a business needs a comprehensive record-keeping
system—one that recognizes, records, and reports all the assets and liabilities
of a business. This all-inclusive scope of financial record keeping
is referred to as accrual-basis accounting. Accrual-basis accounting
records sales revenue when sales are made (though cash is received
before or after the sales) and records expenses when costs are incurred
(though cash is paid before or after expenses are recorded). Established
financial reporting standards require that profit for a period
must be recorded using accrual-basis accounting methods. Also, these
authoritative standards require that in reporting its financial condition a
business must use accrual-basis accounting.

Adjusted EBITDA

Conventional earnings before interest, taxes, depreciation, and amortization (EBITDA) revised to exclude the effects of mainly nonrecurring items of revenue or gain and expense or loss.

asset turnover ratio

A broad-gauge ratio computed by dividing annual
sales revenue by total assets. It is a rough measure of the sales-generating
power of assets. The idea is that assets are used to make sales, and the
sales should lead to profit. The ultimate test is not sales revenue on
assets, but the profit earned on assets as measured by the return on
assets (ROA) ratio.

Revenue Image 4

benefits-provided ranking

a listing of service departments in an order that begins with the one providing the most service
to all other corporate areas; the ranking ends with the
service department providing service primarily to revenueproducing


This is a term used to describe a point at which revenues equal costs.

Break-Even Analysis

An analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero).

break-even chart

a graph that depicts the relationships among revenues, variable costs, fixed costs, and profits (or losses)

break-even point (BEP)

the level of activity, in units or dollars, at which total revenues equal total costs

Breakeven point

The point at which total costs equal total revenue, i.e. where there is neither a profit nor a loss.

Budget deficit

The amount by which government spending exceeds government revenues.

budget slack

an intentional underestimation of revenues
and/or overestimation of expenses in a budgeting process
for the purpose of including deviations that are likely to
occur so that results will occur within budget limits


A product that is an ancillary part of the primary production process, having
a minor resale value in comparison to the value of the primary product being
manufactured. Any proceeds from the sale of a by-product are typically offset
against the cost of the primary product, or recorded as miscellaneous revenue.

Cafeteria Plan

A flexible benefits plan authorized under the Internal revenue
Code allowing employees to pay for a selection of benefits with pay deductions,
some of which may be pretax.

capital asset

an asset used to generate revenues or cost savings
by providing production, distribution, or service capabilities
for more than one year

Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized against

future-period revenue.

Closing entries

The entries that transfer the balances in the revenue, expense, and dividend accounts to Retained earnings and zero out the revenue, expense, and dividend accounts for the next period.

common-size income statement

Income statement that presents items as a percentage of revenues.

Completed-Contract Method

A contract accounting method that recognizes contract revenue
only when the contract is completed. All contract costs are accumulated and reported as expense
when the contract revenue is recognized.

Constant dollar accounting

A method for restating financial statements by reducing or
increasing reported revenues and expenses by changes in the consumer price index,
thereby achieving greater comparability between accounting periods.

Contribution margin

The difference between variable revenue and variable cost.

contribution margin

An intermediate measure of profit equal to sales revenue
minus cost-of-goods-sold expense and minus variable operating
expenses—but before fixed operating expenses are deducted. Profit at
this point contributes toward covering fixed operating expenses and
toward interest and income tax expenses. The breakeven point is the
sales volume at which contribution margin just equals total fixed

contribution margin

the difference between selling price and
variable cost per unit or in total for the level of activity; it
indicates the amount of each revenue dollar remaining
after variable costs have been covered and going toward
the coverage of fixed costs and the generation of profits

Contribution margin

The margin that results when variable production costs are subtracted
from revenue. It is most useful for making incremental pricing decisions
where a company must cover its variable costs, though perhaps not all of its fixed

contribution margin ratio

the proportion of each revenue dollar remaining after variable costs have been covered;
computed as contribution margin divided by sales

Cost Plus Estimated Earnings in Excess of Billings

revenue recognized to date under the percentage-of-completion method in excess of amounts billed. Also known as unbilled accounts

Cost–volume–profit analysis (CVP)

A method for understanding the relationship between revenue, cost and sales volume.


Refers to the generally accepted accounting principle of allocating
the cost of a long-term operating asset over the estimated useful
life of the asset. Each year of use is allocated a part of the original cost of
the asset. Generally speaking, either the accelerated method or the
straight-line method of depreciation is used. (There are other methods,
but they are relatively rare.) Useful life estimates are heavily influenced
by the schedules allowed in the federal income tax law. Depreciation is
not a cash outlay in the period in which the expense is recorded—just
the opposite. The cash inflow from sales revenue during the period
includes an amount to reimburse the business for the use of its fixed
assets. In this respect, depreciation is a source of cash. So depreciation is
added back to net income in the statement of cash flows to arrive at cash
flow from operating activities.

direct method

a service department cost allocation approach
that assigns service department costs directly to revenueproducing
areas with only one set of intermediate cost
pools or allocations

Direct-Response Advertising

Advertising designed to elicit sales to customers who can be
shown to have responded specifically to the advertising in the past. Such costs can be capitalized
when persuasive historical evidence permits formulation of a reliable estimate of the future revenue
that can be obtained from incremental advertising expenditures.

Dollar bonds

Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with
"U.S. Dollar" bonds, a common term of reference in the Eurobond market.

earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.

Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.


EBITDA divided by total sales or total revenue.

Economic dependence

Exists when the costs and/or revenues of one project depend on those of another.

economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework

Federal Employer Identification Number

A unique identification number issued
by the federal government used for payroll purposes to identify the company
when it deals with the Internal revenue Service.

fixed expenses (costs)

Expenses or costs that remain the same in amount,
or fixed, over the short run and do not vary with changes in sales volume
or sales revenue or other measures of business activity. Over the
longer run, however, these costs increase or decrease as the business
grows or declines. Fixed operating costs provide capacity to carry on
operations and make sales. Fixed manufacturing overhead costs provide
production capacity. Fixed expenses are a key pivot point for the analysis
of profit behavior, especially for determining the breakeven point and for
analyzing strategies to improve profit performance.

Free-on-Board (FOB) Destination

A shipping arrangement agreed to between buyer and
seller where title to the goods sold passes when the goods in question reach their destination.
When goods are shipped FOB destination, revenue is properly recognized when the goods reach
their destination.

Free-on-Board (FOB) Shipping Point

A shipping arrangement agreed to between buyer and
seller where title to the goods sold passes when the goods in question are delivered to a common
carrier. When goods are shipped FOB shipping point, revenue is properly recognized when the
goods are delivered to the common carrier.


The profit earned on the sale of an asset, computed by subtracting its book value
from the revenue received from its sale.

Gross margin

revenues less the cost of goods sold.

gross margin, or gross profit

This first-line measure of profit
equals sales revenue less cost of goods sold. This is profit before operating
expenses and interest and income tax expenses are deducted. Financial
reporting standards require that gross margin be reported in
external income statements. Gross margin is a key variable in management
profit reports for decision making and control. Gross margin
doesn’t apply to service businesses that don’t sell products.

Gross profit

The difference between the price at which goods or services are sold and the cost of sales.
Income The revenue generated from the sale of goods or services.

Gross Profit

revenue less cost of goods sold.

Gross Profit Margin

Gross profit divided by revenue.


Net earnings after all expenses for an accounting period are subtracted from all
revenues recognized during that period.

Income Statement

One of the basic financial statements; it lists the revenue and expense accounts of the company.
The Income Statement is prepared for a given period of time.

income statement

Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. It’s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reports—but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
Profit measurement depends on the reliability of a business’s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.

Income statement

A financial report that summarizes a company’s revenue, cost of
goods sold, gross margin, other costs, income, and tax obligations.

income statement

Financial statement that shows the revenues, expenses, and net income of a firm over a period of time.

Income statement (statement of operations)

A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.


The category describing a company's primary business activity. This category is usually determined
by the largest portion of revenue.

investment center

a responsibility center in which the manager
is responsible for generating revenues and planning
and controlling expenses and has the authority to acquire,
dispose of, and use plant assets to earn the highest rate
of return feasible on those assets within the confines and
to the support of the organization’s goals

Investment income

The revenue from a portfolio of invested assets.
Investment management Also called portfolio management and money management, the process of
managing money.

joint process

a manufacturing process that simultaneously
produces more than one product line
joint product one of the primary outputs of a joint process;
each joint product individually has substantial revenuegenerating

Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.


an expired cost that was unintentionally incurred; a cost
that does not relate to the generation of revenues


An excess of expenses over revenues, either for a single business transaction or in
reference to the sum of all transactions for an accounting period.

Matching concept

The accounting principle that requires the recognition of all costs that are associated with
the generation of the revenue reported in the income statement.

Matching principle

The process of linking recognized revenue to any associated
costs, thereby showing the net impact of all transactions related to the recognition
of revenue.

Matching Principle

An accounting principle that ties expense recognition to revenue recognition,
dictating that efforts, as represented by expenses, are to be matched with accomplishments,
that is, revenue, whenever it is reasonable and practicable to do so.

Municipal notes

Short-term notes issued by municipalities in anticipation of tax receipts, proceeds from a
bond issue, or other revenues.

negative cash flow

The cash flow from the operating activities of a business
can be negative, which means that its cash balance decreased from
its sales and expense activities during the period. When a business is
operating at a loss instead of making a profit, its cash outflows for
expenses very likely may be more than its cash inflow from sales. Even
when a business makes a profit for the period, its cash inflow from sales
could be considerably less than the sales revenue recorded for the
period, thus causing a negative cash flow for the period. Caution: This
term also is used for certain types of investments in which the net cash
flow from all sources and uses is negative. For example, investors in
rental real estate properties often use the term to mean that the cash
inflow from rental income is less than all cash outflows during the
period, including payments on the mortgage loan on the property.

Net income

The company's total earnings, reflecting revenues adjusted for costs of doing business,
depreciation, interest, taxes and other expenses.

Net income

The excess of revenues over expenses, including the impact of income taxes.

net income (also called the bottom line, earnings, net earnings, and net

operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. Net income is clearly the single most important number in business
financial reports.

Net realizeable value

The expected revenue to be gained from the sale of an item or
service, less the costs of the sale transaction.

Net sales

Total revenue, less the cost of sales returns, allowances, and discounts.

Nonqualified Stock Option

A stock option not given any favorable tax treatment
under the Internal revenue Code. The option is taxed when it is exercised,
based on the difference between the option price and the fair market
value of the stock on that day.

Nonrecurring Items

revenues or gains and expenses or losses that are not expected to recur
on a regular basis. This term is often used interchangeably with special items.

operating activities

Includes all the sales and expense activities of a business.
But the term is very broad and inclusive; it is used to embrace all
types of activities engaged in by profit-motivated entities toward the
objective of earning profit. A bank, for instance, earns net income not
from sales revenue but from loaning money on which it receives interest
income. Making loans is the main revenue operating activity of banks.

Opportunity cost

Lost revenue that would otherwise have been realized if a different
decision point had been selected.

overhead costs

Overhead generally refers to indirect, in contrast to direct,
costs. Indirect means that a cost cannot be matched or coupled in any
obvious or objective manner with particular products, specific revenue
sources, or a particular organizational unit. Manufacturing overhead
costs are the indirect costs in making products, which are in addition to
the direct costs of raw materials and labor. Manufacturing overhead
costs include both variable costs (electricity, gas, water, etc.), which vary
with total production output, and fixed costs, which do not vary with
increases or decreases in actual production output.


The length of time required for the net revenues of an investment for the net revenues of an investment to return the cost of the investment.

Percentage-of-Completion Method

A contract accounting method that recognizes contract
revenue and contract expenses as progress toward completion is made.







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