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Revenue

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Business Studies

Take sales, take costs and try to get that big positive number at the bottom."

- Bill Gates

Sales and costs are the basis of revenue calculations and are essential for businesses to understand and analyse; but what is the difference between revenue, income, and profit? Let's find out.

The meaning of revenue

Revenue is the income generated within an organisation as a result of performing business operations over a period.

Revenue depends on the number of items/services an organisation sells and its selling price.

Revenue is the total proceeds from selling products or services. It is the amount before deducting the taxes, expenses, and costs.

Revenue helps to calculate the different measures of profit for an organisation.

Company A sold 1,000 units of their product for £5 each. Their revenue is £5,000.

What is the formula for revenue?

Sales revenue depends on the number of units sold and their sales price.

Average Revenue (AR) is the amount of revenue earned by the firm per unit of good/service sold.

Marginal Revenue (MR) is defined as the change (increase) in total revenue by producing one additional unit of output.

Types of revenue

A company can receive two types of revenue - operating and non-operating.

Operating revenue (or operating income)

Operating revenue includes the revenue that a company earns from its primary activities such as sales.

It can be from the sales of products or services.

The cost of goods sold is the total amount the business had to pay for expenses that are directly related to the sale of a product or service. For example, for a carpenter, this would be the cost of wood for making a table. Operating expenses include costs incurred by the business through its normal business operations, like rent or accounting fees.

A technology company earns its operating revenue by selling technical solutions (services), and a carpenter sells furniture (products).

The carpenter's total revenue is £30,000, the cost of goods sold is £10,000, and operating expenses are £2,000. Operating income is equal to £18,000.

Non-operating revenue

The revenue that a company earns from activities other than its primary activities.

This includes dividends income, profits or losses from investments, gains or losses from foreign exchange, etc. Non-operating income is inconsistent compared to the operating revenue.

A technology company decides to spin off one of its divisions for £300 million in cash and stock. The proceeds from this sale are considered a non-operating income.

What is the difference between revenue and income?

Revenue - the total proceeds from selling products or services. It is the amount before deducting the taxes, expenses, and costs. The revenue appears at the top of the income statement and is therefore known as the 'top line'. Revenue shows how much cash a company can generate over a period.

Income - the amount of money remaining from revenue after the subtraction of expenses. It is also referred to as the 'bottom line'. The income describes how efficiently the company spends its money and manages its operating cost.

Income is always lower than revenue.

When a company sells 10,000 tables a year at a price of £200 each, the revenue of the company for the year is £2,000,000 (£200 X 10,000). If it cost the company a total of £800,000 to manufacture the tables including the raw materials and labour, the company’s income for the year is £1,200,000.

Example of an income statement

Revenue Income statement StudySmarterFigure 1. Example of an Income Statement, StudySmarter

What is tax revenue?

Tax revenue is the revenue received through taxation. It is the primary source of income for the Government. Such taxes are extracted from individuals, public or private organisations, etc. The tax revenue can be categorised as corporate tax, income tax, and service tax; we will look at each of these in more detail below.

Corporate tax

Corporate tax is the Government’s biggest source of income. Revenue taxes are spent on social security, medical aid, child nutrition programmes, housing assistance, and several other welfare programmes.

Taxable on the company’s net profit of the year. Corporate tax varies for every country. It is 19 percent in the UK from 2021-2022. If a company makes a net profit of £2.5 million, the company will pay £475,000 in taxes. (The company retains £2,025,000.)

Income tax

The tax that is levied on individuals or businesses by the Government is called income tax.

The tax rate is different in every country, and also within the country for individuals. Usually, an individual that earns more, pays more in taxes. In the UK, you do not pay taxes if your income is below £12,570. This amount is known as a personal allowance. The tax bands in the UK for the year 2021-2022 are as follows:

Band
Taxable IncomeTax rate
Personal allowanceUp to £12,5700%
Basic rate£12,570 - £50,27020%
Higher rate£50,271 - £150,00040%
Additional rateAbove £150,00045%

Service tax

The Goods and Service Tax (GST) is taxed on domestic goods and services.

It is paid by the last dealer in the supply chain (customer) and is remitted to the Government by the businesses. GST in the UK is 20 percent.

This tax raises the cost of goods and services significantly, as the end-price of a product or service paid by the customer is inclusive of the tax.

If a washing machine’s price is £450, a GST of 20 percent is added, resulting in a calculated net price of £540.

What are tax revenues and non-tax revenues?

Tax revenues are of two types - the ones collected on the income of an entity known as the direct tax, and the ones based on the value of goods and services, known as the indirect tax.

Non-tax revenue is received by Government through non-tax related activities, like the profits of a Government-run organisation.

Although sources of tax revenues are lower than that of non-tax revenues, the amount per source of tax revenues is much higher than that of non-tax revenues.

Sources of tax revenue - corporate tax, payroll taxes, individual income taxes, etc.

Sources of non-tax revenue - profits of a government-owned organisation, bonds, etc.

Custom revenue

Customs is one of the main sources of revenue for the Government. Customs is a Governmental organisation collecting taxes from people on the import or export of goods. Customs also helps to protect domestic industry from foreign competition.

Revenue - Key takeaways

  • Revenue is the income generated within an organisation as a result of performing business operations over a period.

  • Revenue = Quantity sold X Sales price.

  • Average Revenue = Total Revenue/Quantity.

  • Marginal Revenue = Change in Revenue/Change in quantity.

  • Operating and non-operating revenue are two types of revenue.

  • Operating revenue is earned from the company’s primary business, whereas, the revenue from other activities is called non-operating revenue.

  • Revenue is the income generated within an organisation as a result of performing business operations over a period.

  • Income is the amount of money remaining from revenue after the subtraction of expenses.

  • Tax revenue is the revenue received through taxation. It is the primary source of income for the Government.

  • Non-tax revenue is paid by the population to the Government for Government-offered services and is a mandatory tax.

  • Customs is a governmental organisation collecting taxes from people on the import or export of goods.

Revenue

The total amount of money collected by the Government in terms of taxes, charges, and other income at the state and local level is known as general revenue. Revenue can also be defined as the money generated as a result of sales of goods and services of a company over a period.  

Revenue is the total proceeds from selling products or services. It is calculated before deducting the taxes, expenses, and costs. Revenue shows how much cash a company can generate over a period. It also helps to calculate the different measures of profit of the organisation. Sales revenue depends on the number of units sold and their sales price.

Revenue = Quantity sold X Sales price.

Revenue in business is the total amount of money generated by a company by selling its goods and services over a period. It is calculated before deducting the taxes, expenses, and costs. The revenue appears at the top of the income statement and is therefore known as the “top line”. Revenue shows how much cash a company can generate over a period and depends on the number of goods sold and its price.

In business, revenue is the total amount of money generated by the sales of goods or services of the company.

Final Revenue Quiz

Question

Revenue depends on the number of ___ an organisation sells and its selling price. 

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items/services 

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Complete the formula.



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Quantity Sold

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Complete the formula.



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Answer

Change in Revenue

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What is the following formula for?



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Average Revenue

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It is the change (increase) in total revenue by producing one additional unit of output. What is it?

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Marginal Revenue

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Question

___ revenue includes the revenue that a company earns from its primary activities such as sales.

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Answer

Operating

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Question

Income is always higher than revenue.


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Answer

False

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Question

The tax that is levied on individuals or businesses by the Government is called...


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Answer

income tax.

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Question

This type of tax is the Government’s biggest source of income. What tax is it?

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Answer

corporate tax

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Question

A company sold 500 units of their product for £2 each. What is their revenue?


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£1,000

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Income is the amount of money remaining from revenue after the subtraction of expenses. 


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True

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Income and revenue are the same thing.

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False

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What is the following formula for?



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Operating income

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Question

Complete the formula.



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Total expenses

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Question

___ the amount of revenue earned by the firm per unit of good/service sold.

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Average revenue

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This type of revenue includes the revenue that a company earns from its primary activities such as sales. What type of revenue is it?

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Operating revenue

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Operating revenue is revenue that a company earns from activities other than its primary activities.

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False

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What does GST stand for?

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Goods and Service Tax

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Question

GST in the UK is 20 percent. 


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True

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If a product's price is £100, a GST of 20 percent is added, resulting in a calculated net price of...


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£120

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___  is received by Government through non-tax related activities, like the profits of a Government-run organisation.

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Non-tax revenue

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Corporate tax, payroll taxes, individual income taxes, etc. are sources of tax revenue.


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True

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The higher the number of sales and selling price, the lower revenue.

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False

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