Do you think revenue and profit are the same? . Well, this is not true. In accounting terms, there is a substantial difference between revenue and profit. When you receive revenue, it does not mean that your business has earned a profit. While your business is doing well, being well-versed in accounting and bookkeeping gives your business an advantage. This is because then you are able to assess and manage your funds in a better way.
This is why businesses need the help of professionals accounting firms who assist them in their day to day book-keeping and accounting systems. Revenue vs profit can be explained in following points.
Top and bottom line
Revenue vs profit compared as the top vs bottom line. In a business, revenue is considered as the top line. Revenue is the total amount of money earned by the company after the sales of its goods or services. Profit is considered as the bottom line. Profit is the sum total of the income after deducting the cost of the materials, operating and non-operating expenses, debts and taxes.
Another difference between revenue and profit is the dependency. Revenue is independent on its own while the profitability depends upon the revenue earned. The greater the difference between the revenue and the expenses, the greater is the profit earned.
Revenue and profits come in two types. Revenue can be received from operating activity which is the core business of the company. This is known as operating revenue. The second type is revenue received from a non-operating activity, which is called as non-operating revenue.
The two types of profit are gross profit and net profit. Profit received after deducting the operating expenses is known as gross profit. Whereas profit earned after deducting the debts, interests and taxes is known as net profit.
One major difference between revenue and profit is the tax applicability. A tax rate is applicable only when you’ve earned a substantial amount of profit. You cannot be asked to charge tax for the revenue earned. The tax rate if applicable or not can only be known when you close the books of accounts at the end of the financial year since profit is calculated at the end.
The above mentioned points will assist you to know revenue vs profit. It is important that firms maintain a proper record of all the transactions and accordingly understand the difference between the two terms. A good book-keeping practice will help you in analyzing the income statement and accordingly work out plans to increase the revenue and profitability of the firm. A professional accounting firm is the best guide to help you.