What is the difference between revenue and profit?

Answer:

Income is the total income from the sale of goods or services related to main activities of the company. The company is often called the top line because he is sitting at the top of the income statement. The amount of revenues the company generates, before any expenses are taken out.

For example, a Shoe retailer, the money he gets from selling shoes before accounting for any expenses, his income. If the company has income from investments or subsidiaries, the income is not considered income; it does not come from the sale of shoes. Additional streams of income and various expenses are accounted for separately.

Types Of Income

Accrued Revenue

Accrued income is the same as non-operating income. Accrued income is income earned by the company for the supply of goods or services that must be paid by the customer.

For example, a company sells widgets for $5 each on net 30 terms for all their clients and sells 10 widgets in August. Because invoices its customers on volume-30 conditions to the company’s customers will not have to pay until 30 days or 30 September. As a result, revenue for August will be considered as accrued income for as long as the company receives payment.

From the point of view of accounting, the company recognizes the $50 of income on the income statement and $50 in accrued income as an asset on the balance sheet. When the company collects the$ 50, the cash account on the statement of profit and loss account increases charged to revenue decreases and $50 to income will remain unchanged.

Unearned Income

It is important not to confuse the accrued revenue from unearned income. Unearned income can be thought of as the opposite of accrued income that unearned income is money prepaid by the buyer for the goods or services that were not delivered.

If the company requires advance payment for their goods, it recognises revenue as unearned, and will not recognize income on its income statement until the period for which the goods or services were delivered.

Profit

In the statement of profit and loss, there are variations of profits, which are used to analyze the effectiveness of the company.

Profit, usually referred to as net profit or the bottom line – the amount of revenue that remains after accounting for all expenses, debts, additional revenue streams and operating expenses. The bottom line is also referred to as net income in the statement of profit and loss.

However, there are other profits within the top line (sales) and bottom line (net profit), the term “profit” may occur in the context of gross margin and operating profit. These are steps on the way to net profit.

Gross profit represents revenue less cost of goods sold (COGS), which are the direct costs associated with the production of goods sold in the company. This amount includes the cost of materials used in creating the good along with the direct labor costs used to produce the good.

Operating profit is gross profit minus all other fixed and variable costs associated with doing business such as rent, utilities and wages.

Example: Comparing Revenues And Profits

J Company Inc. (JCP)

The following are the numbers and the income portion at J. C. penny for 2017. The figures were reported on their 10K annual report, p. 46, closing on 03 Feb 2018.

  • Revenue or sales = $12.50 billion.
  • Gross profit = $4.33 billion (Total revenue of $12.50 B – cogs $8.17 B).
  • Operating profit = $116 million. (excluding all other fixed and variable costs associated with doing business such as rent, utilities and wages).
  • Profit or net income = -$116 million (loss).


Bottom Line

When most people refer to the profits of the enterprise, they are not referring to gross profit or operating profit, and net income is the remainder after the deduction of expenses or profit. We see that J. C. Penney suffered a loss in the bottom line of 116 million dollars, despite earning 12.5 billion dollars in revenue.

It is important to remember that while revenue and profit how to refer to money the company earns, it is possible for the company to generate income, but there is a net loss. Loss occurs typically, when the debts or expenses exceed income, as in the case of J. C. penny.

For more revenue and profit case study by Apple (aapl), please read the difference between the upper and lower rows.

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