What is the difference between income and revenue?

The main difference between the two is how they are calculated. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Income is a company’s total earnings from sales. It’s common for people to use the terms ‘income’ and ‘revenue’ can be used interchangeably. But for a small business owner managing the books, there is an important distinction. The basic revenue figure is typically recorded on the company balance sheet and represents all the cash coming into the company, less the cost of any returns or discounts.

 

What is Revenue?

Revenue = Income – discounts – deductions for returns

 

It is also important to note that revenue is distinctly different from profit which is calculated after all deductions, such as taxes, debts and expenses.

 

What is Operating Income? 

Calculating operating income (sometimes called recurring profit, or earning before interest and taxes – EBIT) is slightly more involved. Operating income is worked out by subtracting the running costs of the business from the revenue total. Legitimate deductions include the cost of goods sold, rent, heating, marketing and advertising costs and payroll.

 

The basic formula is:

 

Operating income = Gross income – operating expenses – depreciation and amortization

 

Again, operating income does not include deductions for taxes, debts or loan interest payments.

 

By understanding the concepts of revenue and operating income, you will be able to master a fuller analysis of the financial health of your business. In many cases, your accounting software will calculate these values automatically as you record income and expenditure. In the event that you have difficulty finding these numbers, you should speak to an accountant who will be able to assist.