What is REVENUE ?

What is Revenue

Business is the transaction between two parties who involve themselves in a trade or exchange of goods & services. It is a process where both parties share the common interest for mutual benefit. They exchange the value where one party gains monetary benefit over the other after exchanging of goods and services. This transaction reveals the concept of Revenue. It is the total gross class flow to the business entity before deducting expenses & taxes. 

If we want to calculate the total amount of Revenue, then we need to multiply the total number of Units sold with the selling price.
 
For example: If the firm is manufacturing machinery tool for $10 units each, then the total revenue for 10 units is 10*($10) = $100

Revenue & it’s interdependence with other Financial & Accounting terms :

Revenue

R- Return on investment:

Return on investment (ROI) is a crucial factor for the existence & growth of the business unit. ROI is the ratio of total profit versus investment done during the fiscal year. It’s usually expressed as percentage to show the efficiency of different business investments.

The basic formula is as follows,

Return on investment = (Total Profit or loss / Total investment) *100

E- Earning from business:

Revenue determines your total earnings from the business. Earning or income is an amount subtracted after deducting expenses & taxes from revenue. Earning represents the financial status of the company. An investor usually sees the profit margin or earning of the company to make an investment decision. 

V- Value of business:

Every firm tries to maximize its market value by optimizing resources. To find the value of the business, you need to subtract the total liabilities from the total assets. If you are having $ 1000 in assets & $ 300 in liabilities then the value of your business is  $1000- $ 300 = $700.  

E- Equity of business:

Equity is like the value that a business entity owns after deducting debt from total assets. The asset to the debt ratio is an indicator of the financial health of the business. Total earnings, which depend on revenue generated indicates the equity of the firm.

N-Net income of the business:

Net income to the business entity is the amount left after deducting fixed cost, variable cost & taxes from total Revenue. Without having adequate revenue, a business cannot pay its expenses and retain earnings for future growth.

 

U- Utility of business:

The utility of business is the state of being profitable. Every organization wants to be ahead of competition & remain profitable even in an economic downturn. In the business transaction, revenue & profit indicates the utility of business.

E- Efficacy of business:

Total Revenue of the business unit depends upon the performance of the business unit. Efficacy is the ability of the firm to produce desirable results. The best possible way by minimizing the waste of resources increases the revenue of the firm.

Every successful business creates or provides something that gives value to people. In business transactions revenue is a crucial factor which determines the financial health of the business. In other words, we can say it can act as a source of water to grow the tree of business.

Related articles:

What is marketing  What is profit

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  3. For example, revenue could be recognized when a deal is signed, when the money is received, when the services are provided, or at other times. There are rules specifying when revenue should be recognized in different situations for companies using different accounting methods, such as cash basis and accrual basis accounting.

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