The goal of a business is to earn profit and attract more customers. These two factors determine the survival of a business in a competitive marketplace.
Every company has the responsibility to manage finance accurately and come up with a sufficient budget. But it needs a thorough understanding of both revenue and profit.
So, what is the main difference between revenue and profit? Revenue is the proceeds obtained from the sale of goods or services. Profit is the amount of income remaining after deducting expenses, debts, and operational costs.
Many people usually use revenue and profit interchangeably. But these accounting concepts are super different in terms of calculation in the books of accounts.
This article provides further differences between revenue and profit in a tabular form. You’ll also get to know the relationship between revenue and profit in the long run.
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Comparison Table (Revenue Vs Profit)
|Description||It is the proceeds from the sale of goods and services.||It is the amount remaining after the deduction of operational costs, debts, and taxes.|
|Formula||Total sales minus total returns.||Total revenue minus total expenses.|
|Types||Operating revenue and non-operating revenue.||Gross profit and net profit.|
|Books of Account||Occur on the trading account.||Occur on the income statement.|
|Significance||Crucial for operating a business.||Enhance business growth and survival in the market.|
|Relationship||Can be generated without profit.||Cannot be generated without revenue.|
|Subset or superset||It is a superset of profit.||It is a subset of revenue.|
|Users||Sales manager, chief revenue office, chief financial officer.||Accountants, financial analysts, chief financial officer.|
|Income statement item||Top-line||Bottom-line|
|Nature||Earnings from activities undertaken||Reward from undertaking the risk and uncertainties|
What Is Revenue?
It is the proceeds from various business activities such as the sale of goods or services. Revenue appears on the top line of a company income statement.
Turnover is a type of revenue generated from the sale of goods or delivery of services. It helps in meeting the fixed and variable operational expenses of a firm.
Operational and non-operational revenue help the company to run effectively and efficiently. Operational revenue is obtained from the sale of goods and delivery of services.
Non-operational revenue is the proceeds generated from other business activities undertaken side by side from the core activities such as the sale of an asset, the sale of scrap, and dividends received.
What Is Profit?
It is the excess left after deducting operational costs, taxes, and associate expenses. It is the financial gain for a business or a company.
Profit is also described as the return of undertaking risks and uncertainties. The surplus amount enhances business growth and survival in a competitive market.
Profit is further divided into gross profit, operational profit, and net profit. Gross profit refers to the amount remaining after deducting all the costs related to the production of output or service delivery.
Operational profit is the remaining amount after deducting operating expenses. These are expenses incurred after undertaking normal business operations.
Net profit is the remaining amount after subtracting all the expenses, costs, interests, and taxes from the total revenue.
Main Difference between Revenue and Profit
- Revenue proceeds from the sale of goods or services. Profit is the surplus after deducting input costs, taxes, and interests.
- Revenue is equal to total sales minus total returns. Profit is equal to total revenue minus total expenses.
- Types of revenue are operating and non-operating revenues. Types of profits are gross, operational, and net profits.
- Revenue appears on the trading account. Profit appears on the income statement.
- Revenue is vital for business operations. Profit is vital for business growth and survival.
- Revenue is a top-line while profit is a bottom line
- Revenue is a superset of profit and profit is a subset of revenue.
- Revenue can be earned without profit. Profit cannot be earned without revenue.
Similarities between Revenue and Profit
- Both appear on the income statement.
- Both are useful for business financial management.
- Both determine the success of a business
The difference between revenue and profit is complex. But these concepts are essential to spearhead the survival of the business across the world.
Business dynamics and macroeconomics signifies financial existence. It provides an indicator of the future survival of the business.
Revenue is the proceeds from various business activities like the sale of goods and delivery of services. It is grouped into operational and non-operational revenue.
Profit is the reward from undertaking risks and uncertainties. It is further classified as gross profit, operational profit, and net profit.
Understanding the difference between profit and revenue will help to manage the books of accounts. Besides that, it fosters proper management of business finances.
More Sources and References
- Accounting System in Higher Education. North Carolina State University.
- Postsecondary Institution Revenues. National Center for Education Statistics.