Revenues - What are revenues?
Revenues are income a company receives in its day-to-day business operations.
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Revenues are made largely by the sale of goods and services. There are other ways of acquiring revenue, however, such as from interest, dividends or royalties paid to a business by another company.
Revenues can be found at the top of the profit and loss statement, above the expenses section. The reason the profit & loss statement is constructed in such a way is to calculate net income, which is equal to revenues - expenses.
Revenues are increased on the credit side and are recognised in the financial statements depending on the financial standards the business is using. A business can choose to record its revenues based on one of the two main accounting methods.
In the accrual accounting approach, income is recorded when it’s created, rather than when it’s received. For instance, the income will be reported when the invoice was sent, rather than when the payment was received. It’s reported as an asset on the balance sheet until cash is received at a later time.
There are a variety of types of revenues, classified according to how they were earned in the business. However, revenues can be broken down into two main types:
Any revenue made through normal business operations (the day-to-day sales of products or services) is considered operating revenue.
Essentially, this includes any revenue made through means other than the daily operations, such as interest earned on investments or money made from selling an asset. Non-operating revenues are considered secondary.
There’s an additional type of revenue called deferred revenue. Deferred revenue refers to any payments that are made in advance of a product being delivered or service completed.
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