Definition of Revenue
Income earned from the sale of goods and services.
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.
Bond issued by local government agencies on behalf of corporations.
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.
A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.
Total sales and other revenue for the period shown. Known as "turnover" in the UK.
The amount sold after customersâ€™ 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.)
Money that has been paid by customers for work yet to be done or goods yet to be provided.
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.)
the revenue resulting from an additional contemplated sale
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
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.
Refers to all federal tax laws as a group.
A federal agency empowered by Congress to interpret and enforce tax-related laws.
revenue recognized on a nonexistent sale or service transaction.
revenue recognized for a confirmed sale or service transaction in a period
prior to that called for by generally accepted accounting principles.
services are readily convertible into known amounts of cash or claims to cash.
A revenue transaction where goods and services are exchanged for cash or
claims to cash.
The act of recording revenue in the financial statements. revenue should
be recognized when it is earned and realized or realizable.
Sales Revenue Revenue recognized from the sales of products as opposed to the provision of
revenue recognized from the provision of services as opposed to the sale of
The amount by which government spending exceeds government revenues.
The difference between variable revenue and variable cost.
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 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.
Exists when the costs and/or revenues of one project depend on those of another.
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.
The revenue from a portfolio of invested assets.
Investment management Also called portfolio management and money management, the process of
Limited-tax general obligation bond
A general obligation bond that is limited as to revenue sources.
The accounting principle that requires the recognition of all costs that are associated with
the generation of the revenue reported in the income statement.
Short-term notes issued by municipalities in anticipation of tax receipts, proceeds from a
bond issue, or other revenues.
The company's total earnings, reflecting revenues adjusted for costs of doing business,
depreciation, interest, taxes and other expenses.
Price/sales ratio (PS Ratio)
Determined by dividing current stock price by revenue per share (adjusted for stock splits).
revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares
Production payment financing
A method of nonrecourse asset-based financing in which a specified
percentage of revenue realized from the sale of the project's output is used to pay debt service.
Indicator of profitability. The ratio of earnings available to stockholders to net sales.
Determined by dividing net income by revenue for the same 12-month period. Result is shown as a
Receivables turnover ratio
Total operating revenues divided by average receivables. Used to measure how
effectively a firm is managing its accounts receivable.
Also called a prerefunded bond, one that originally may have been issued as a general
obligation or revenue bond but that is now secured by an "escrow fund" consisting entirely of direct U.S.
government obligations that are sufficient for paying the bondholders.
Tax deferral option
The feature of the U.S. Internal revenue Code that the capital gains tax on an asset is
payable only when the gain is realized by selling the asset.
A contract that qualifies as a valid lease agreement under the Internal revenue code.
Mutual Funds: A measure of trading activity during the previous year, expressed as a percentage of
the average total assets of the fund. A turnover ratio of 25% means that the value of trades represented onefourth
of the assets of the fund. Finance: The number of times a given asset, such as inventory, is replaced
during the accounting period, usually a year. Corporate: The ratio of annual sales to net worth, representing
the extent to which a company can growth without outside capital. Markets: The volume of shares traded as a
percent of total shares listed during a specified period, usually a day or a year. Great Britain: total revenue.
The point at which total costs equal total revenue, i.e. where there is neither a profit nor a loss.
Costâ€“volumeâ€“profit analysis (CVP)
A method for understanding the relationship between revenue, cost and sales volume.
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.
A method of budgeting that takes into account seasonal fluctuations and estimates of when revenues will be earned and costs will be incurred over each month in the budget period.
Sales revenue less the cost of materials.
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.
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.
Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term revenue.
A contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales.
A contra account that offsets revenue. It represents the amount of sales made that were later returned.
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.
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
systemâ€”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.
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.
An intermediate measure of profit equal to sales revenue
minus cost-of-goods-sold expense and minus variable operating
expensesâ€”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
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 recordedâ€”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.
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 expensesâ€”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.
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.
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
doesnâ€™t apply to service businesses that donâ€™t sell products.
Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. Itâ€™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 reportsâ€”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 businessâ€™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.
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 (also called the bottom line, earnings, net earnings, and net
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
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.
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.
This is a key factor in the profit model of a business. Product
cost is the same as purchase cost for a retailer or wholesaler (distributor).
A manufacturer has to accumulate three different types of production
costs to determine product cost: direct materials, direct labor, and
manufacturing overhead. The cost of products (goods) sold is deducted
from sales revenue to determine gross margin (also called gross profit),
which is the first profit line reported in an external income statement
and in an internal profit report to managers.
The general term profit is not precisely defined; it may refer to net
gains over a period of time, or cash inflows less cash outflows for an
investment, or earnings before or after certain costs and expenses are
deducted from income or revenue. In the world of business, profit is
measured by the application of generally accepted accounting principles
(GAAP). In the income statement, the final, bottom-line profit is generally
labeled net income and equals revenue (plus any extraordinary gains)
less all expenses (and less any extraordinary losses) for the period. Inter-
nal management profit reports include several profit lines: gross margin,
contribution margin, operating profit (earnings before interest and
income tax), and earnings before income tax. External income statements
report gross margin (also called gross profit) and often report one
or more other profit lines, although practice varies from business to
business in this regard.
This concept refers to a separate source of revenue and
profit within a business organization, which should be identified for
management analysis and control. A profit module may focus on one
product or a cluster of products. Profit in this context is not the final, bottom-
line net income of the business as a whole. Rather, other measures
of profit are used for management analysis and decision-making purposesâ€”
such as gross margin, contribution margin, or operating profit
(earnings before interest and income tax).
Ratios based on sales revenue for a period. A measure of
profit is divided by sales revenue to compute a profit ratio. For example,
gross margin is divided by sales revenue to compute the gross margin
profit ratio. Dividing bottom-line profit (net income) by sales revenue
gives the profit ratio that is generally called return on sales.
return on sales
This ratio equals net income divided by sales revenue.
Expenses that change with changes in either sales volume
or sales revenue, in contrast to fixed expenses that remain the same
over the short run and do not fluctuate in response to changes in sales
volume or sales revenue. See also revenue-driven expenses and unitdriven
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
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
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
an asset used to generate revenues or cost savings
by providing production, distribution, or service capabilities
for more than one year
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 ratio
the proportion of each revenue dollar remaining after variable costs have been covered;
computed as contribution margin divided by sales
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
when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework
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 organizationâ€™s goals
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
an expired cost that was unintentionally incurred; a cost
that does not relate to the generation of revenues
a responsibility center in which managers are responsible for generating revenues and planning and controlling all expenses
pseudo microprofit center
a center for which a surrogate
of market value must be used to measure output revenue
realized value approach
a method of accounting for byproducts or scrap that does not recognize any value for these products until they are sold; the value recognized
upon sale can be treated as other revenue or other income
a process that compares, to the extent possible
and practical, the incremental revenues and incremental costs of alternative decisions
a report that reflects the revenues and/or costs under the control of a particular unit manager
the excess of revenues over direct variable expenses and avoidable fixed expenses for a particular segment
a process of service department cost allocation
that assigns service department costs to cost objects after
considering the interrelationships of the service departments
and revenue-producing departments
tax shield (of depreciation)
the amount of depreciation deductible
for tax purposes; the amount of revenue shielded
from taxes because of the depreciation deduction
variable cost ratio
the proportion of each revenue dollar
represented by variable costs; computed as variable costs
divided by sales or as (1 - contribution margin ratio)
The recording of revenue when earned and expenses when
incurred, irrespective of the dates on which the associated cash flows occur.
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.
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.
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
The profit earned on the sale of an asset, computed by subtracting its book value
from the revenue received from its sale.
revenues less the cost of goods sold.
Net earnings after all expenses for an accounting period are subtracted from all
revenues recognized during that period.
A financial report that summarizes a companyâ€™s revenue, cost of
goods sold, gross margin, other costs, income, and tax obligations.
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