Understanding Revenue

Revenue is the money brought into a company from its business activities over a specified period of time, such as a quarter or year, before subtracting expenses.

Revenue Recognition Methods

There are different ways to calculate revenue, depending on the accounting method employed. Accrual accounting will include sales made on credit as revenue for goods or services delivered to the customer. Under certain rules, revenue is recognized even if payment has not yet been received.

Cash accounting, on the other hand, will only count sales as revenue when payment is received. Cash paid to a company is known as a “receipt.” It is possible to have receipts without revenue. For example, if the customer paid in advance for a service not yet rendered or undelivered goods, this activity leads to a receipt but not revenue.