Wikipedia of Finance - e-learning course on Accounting Wikipedia Chapter - Revenue and Expenses

What is Revenue and Expenses? Definition with Accounting Examples


Revenue Definition:

In financial accounting, an inflow of money usually from sales or services thru business activities is called as revenue. It is also known as sales or turnover of the business. In other words, an income to a business or an organisation is termed as revenue. For example: royalties or interest or copyright fees may be a part of income for some business. Whereas services offered to customers may be the element of revenue for some companies. For non-profitable businesses, donations from organizations, corporate, individuals are termed as revenue.

A business or a company may have various types of revenue accounts. Bottom line is all this revenue accounts are termed as income for it. For example: company may receive cash on sale of assets, company may receive cash on rental property and many more. These accounts are broadly divided into operating or non-operating revenue accounts.

Revenue Examples:

Examples of Revenue-1: Many businesses for example, manufacturing, grocery stores, retail stores, etc; their primary revenue is actually from sale of products / goods. For service provider businesses for example: chartered accountants, law consultants, barber shops, software professionals, etc; their primary revenue is from services provided to customers. Financing businesses for example banks, car rentals, etc; their primary revenue is from fees and interest received by customers.

Examples of Revenue-2: Assume that the service that manufacture and sells cars would earn revenue from sale of cars is called as regular revenue. In case where firm decide to rent out portion of office building to other company, then company would earn revenue from rented income is called as other revenue. The mixture of the revenue generating techniques, methods and strategies followed by a business is commonly known as income model of a company.

Operating Revenue Definition:

Any income generated by company’s or an organisation’s core business activities are known as operating revenue. An example of operating income includes: income from software development and services for Apple or IBM. Rental income on property for landlord. Revenue from professional consultancy and services for law firms, consultancy and services firms, etc. All this activities are termed as operating income for a business.

Operating Revenue Examples:

  • Sales.
  • Fees or Commission Earned.
  • Service Revenues.
  • Interest Revenue for Late Payments.

Non-operating Revenue Definition:

Any income generated by company apart from its business operations are known as non-operating revenue. It is also termed as other incomes for businesses. An example of non-operating income includes: income from banks interest on savings account. Income generated from sale of assets or business properties, etc. All this activities are termed as non-operating income for a business.

Non-Operating Revenue Examples:

  • Dividend Income.
  • Asset Write-off.
  • Profits from investments,.
  • Gains due to foreign exchange.

Expenses Definition:

In financial accounting, an outflow of money is called as expenses or expenditure. For example: rent may be the part of expenses for tenant. Tuition fees for children may be the element of expenses for parents. For a business, electricity bills, bank charges, sales expense, telephone bills, repair and services are termed as expenses. Expenses may include in a type cash payment like salaries, electricity bills, wages, etc. or in a type of assets depreciation like machinery, building, furniture, land, etc. All this expenses are charged in profit and loss statement as a loss from the income.

Expenses Examples:

Lease / Rent Expense Example-1: Mostly it is observed that companies like to buy various things on rent For example: office space, equipment’s, vehicles, etc. for their business instead of buying it. These types of rental payments occurs every month have always been recorded as expenses in the books of company accounts.

Salary and Wages Expenses Example-2: Employers have to pay or invest on employees to perform day to day business operations. Each employees have different roles and responsibilities for example: manufacturing goods, administrative work, management, etc. The business pays all of these employees / staff for their time and efforts. These payments are recorded as expenses in the bookkeeping of a company.

List of expenses in accounts frequently observed when preparing financial statements:

  • Cost of goods sold.
  • Legal fees.
  • Depreciation.
  • Repair and Services.
  • Administration expenses.
  • Property taxes.
  • Finance costs.
  • Advertising expenses.
  • Travelling expenses.
  • Utility expenses.
  • Entertainment expenses.

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