subject : Financial Accounting
topic: "REVENUE".
it will tell you about the revenue that what revenue actually is? also its importance will describe that its the source of income that will benefit the company in many ways. also its further types are described.
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5. Revenue
O The Term Revenue refers to the income in
business. It is the money that comes in to a
business from the sale of goods or providing
services. Likewise, revenue is referred to the
yield of sources of income that a business
collects and receives. It is the total income
produced by a business or a given source. It’s
the gross income returned by an investment
as well.
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6. O A company’s net income or profit is defined
simply in this way:
O Net Income = Revenues – Expenses +
Gains – Losses.
O Of the other most important metrics on
financial statements, revenue is the most
important measure to assess a company’s
performance and prospects.
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7. Importance
O The reason that why revenue is so important
because the essence of profitability is the
revenue. And in order to get greater profits,
revenues must be raised. Hence, it is important to
look at revenues and finding the ways to raise
revenues, so that a business may attain efficiency,
profitability and sustainable success.
O In accordance with the revenue recognition
principle - being a cornerstone of accrual
accounting and going with matching principle, it's
stated that revenue should be recognized when a
business entity has substantially completed the
revenue generation process. So, the revenue is
recorded when it is earned - not when the cash is
received, unlike that it goes with cash basis
accounting method.Kainat Aslam
8. Revenues are classified as operating and
non-operating revenue
O Operating revenues are
those that come in to a
business from the
company’s main or core
business activities. This
is the area through which a
company earns most of its
income.
O Examples of operating
revenue: Sales, rental
income or providing
services.
O Operating revenue is
considered as the lifeblood
of any company.
O Non operating
revenue includes revenues
earned from a company’s
outside of its normal
operations. These are the
revenues that are associated
with secondary operations of
a business entity – not with
main, central or core
activities.
O Example of non-operating
revenue is the income
generated from the sale of
subsidiary or division.
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9. The common revenue accounts
are as follows:-
O Revenue/sales/fess – These accounts are used to
record the revenues earned from the main activities of a
business entity. It is better to assign particular names to
the accounts, so that the identification and the required
analysis may be made smoothly.
O Interest revenue – This revenue comes from an
investment- usually from bank.
O Rental revenue – it is used to record the revenue that is
received by providing rental services, such as, building,
equipment etc.
O Dividend revenue – It is recorded when dividend on the
stock is earned from other companies that pay dividends.Kainat Aslam