What is the difference between revenue and expenses

These policies also touch on everything from recording transactional data and fixing mathematical inaccuracies to publishing law-abiding financial statements. Procedures covering revenues and expenses -- as well as assets and liabilities -- help a business establish a virtual circle of profitability and liquidity.

This circle enables operating activities to generate money when the economy is good and to rein in losses when marketplace indicators are dismal. Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since , covering topics such as politics, technology and business.

A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management. By Marquis Codjia. Revenue Items For an entrepreneur, thinking about revenue items helps push forward the conversation about profitability, sales growth, marketing strategy and competitive leadership. Expenses If you're a business proprietor, reviewing expenses periodically helps you figure out items that could lead to financial tedium.

Rather, revenue is the term used to describe income earned through the provision of a business' primary goods or services, while expense is the term for a cost incurred in the process of producing or offering a primary business operation. Investors and analysts will typically give far more weight to these metrics than losses or gains.

Revenues are the gross proceeds a company receives when it sells its goods or services and is sometimes simply referred to as "sales. Of the four terms being considered, expenses are the most diverse. Expenses can be related to a multitude of different types of costs such as labor salaries, wages, and employee benefits , marketing and advertising, rent, utility bills, insurance, taxes, interest, depreciation, and amortization.

Expenses can also be recorded into any number of different line items on an income statement to reflect the particular type of expense. Several financial ratios and metrics take account of revenues and expenses, such as the frequently used EBITDA metric, which is earnings before interest, taxes, depreciation, and amortization. In other words, it is revenues less expenses related to the production of goods sold. Internal Revenue Service. Financial Analysis. Financial Statements.

Tools for Fundamental Analysis. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification.

I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Key Takeaways Gains and losses are the opposing financial results that will be produced through a company's non-primary operations and production processes. Revenue describes income earned through the provision of a business's primary goods or services. Select basic ads. Create a personalised ads profile. Select personalised ads.

Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations.

Profit , which is typically called net profit or the bottom line , is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs. Revenue is often referred to as the top line because it sits at the top of the income statement.

The revenue number is the income a company generates before any expenses are subtracted. For example, the money a shoe retailer makes from selling its shoes before accounting for any expenses is its revenue.

Income isn't considered revenue if the company also has income from investments or a subsidiary company. That's because it doesn't come from the sale of shoes.

Additional income streams and various types of expenses are accounted for separately. Profit is referred to as net income on the income statement.

But most people commonly know it as the bottom line. There are variations of profit on the income statement that are used to analyze the performance of a company. But there are other profit margins in between the top line revenue and bottom line net profit.

For instance, the term profit may emerge in the context of gross profit and operating profit. These are steps on the way to net profit. Gross profit is revenue minus the cost of goods sold COGS , which are the direct costs attributable to the production of the goods sold in a company. This amount includes the cost of the materials used in creating a company's products along with the direct labor costs used to produce them.

Operating profit is gross profit minus all other fixed and variable expenses associated with operating the business, such as rent, utilities, and payroll. When most people refer to a company's profit, they are not referring to gross or operating profit, but rather net income. This is what's left over after expenses or the net profit. Keep in mind that it is possible for a company to generate revenue but have a net loss at the same time.

Let's take a look at J. Penney's numbers for , reported on the company's K annual statement, closing on Feb. Losses typically occur when debts or expenses outstrip earnings, as in the case of J. Here are the figures and income statement portion for J. Penney that we mentioned above. Accrued revenue is the same as unrealized revenue. Accrued revenue is the revenue earned by a company for the delivery of goods or services that have yet to be paid for by the customer. Here's a hypothetical example to demonstrate accrued revenue.

Since it invoices its customers on net terms, the company's customers won't have to pay until 30 days later, or on September