What is the Difference Between Revenue and Profit?


Difference Between Revenue and Profit

Revenue and Profit are terms often used interchangeably however they are different and are calculated in a different way before being shown in the books of accounts. In a nutshell difference between revenue and profit is that Revenue can be termed as money a business makes by selling its main goods/services whereas profit is what is left after paying all the bills.

Revenue Profit
Money earned by selling main goods and/or services to customers Net Earnings of a business left after deduction of all expenses
Revenue = Total Sales – Total Returns Profit = Total Revenue – Total Expenses
Also known as Sales, Sales Revenue, Turnover, Gross Income Also known as Bottom Line, Net Profit, Net Earnings
It is shown in Trading Account It is shown in Income Statement

 

Revenue

Also known as Sales, Sales Revenue, Turnover, Gross Income, Top Line. It is the amount of money a business earns by selling its main goods & services to its customers. All proceeds gathered only from the company’s core business operations are eligible to be part of a company’s revenue.

For example, Ford Motor Company’s core business is selling cars so whatever amount it earns over a fixed period of time from the sale of cars will be its revenue for that period. Now, if Ford Motor Company has an investment of 100 Million and earns 1 Million every year from that it will not be counted towards its direct revenue rather it is termed as “income from other sources”.

Below is a trading account showing (in red highlighted) Revenue of a business. (Sales – Returns)

Sales Revenue Shown in Trading Account

 

Profit

Also known as Bottom Line, Net Profit or Net Earnings. Profit is what is left after deduction of all expenses from revenue. Profits can be calculated at various levels e.g. Gross Profit, Net Profit etc. From a broader perspective Profit = Revenue – Expenses.

Gross Profit is the difference between total revenue earned from selling products/services and the total cost of goods/services sold. Gross Profit = Total Revenue – COGS (Cost of Goods Sold)

Below is an income statement showing (in red highlighted) profit earned by a business during a particular period

Profit Shown in Profit and Loss Account

 



 

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