What is revenue and how does it differ from profit?

Every novice entrepreneur faces the need to carefully understand financial terminology. Even if a very competent accountant is working for him, he needs to understand the basics of production and income generation himself. In particular, it is important to know what revenue is, what is its difference from profit, how its level affects the work of the enterprise and how it can be planned.

The concept and methods of accounting

Very often, for those who only conceive their own business or are at the very beginning of the business path, there is a misconception about what revenue is. Often it is confused with the company's net income , because of which there are miscalculations in the planning of activities. As a result, bankruptcy usually results. Meanwhile, it's very simple to understand the difference. Revenue is the result of the sale of the products, works or services provided. It consists of cash receipts received as payment for goods (barter) and receivables. In addition, revenue is the financial result of investment activities when selling non-current assets or securities. However, it is mainly determined by the total income from the main activity.

To account for revenue, accountants use two methods:

• Cashier - when payment is received for the proceeds received on accounts in money or commodity equivalent. This method is used by enterprises whose revenues do not exceed one million rubles per quarter based on the results of the last year of operation.
• Accrual method - when revenue is calculated immediately upon shipment of the goods to the buyer or on the provision of services, regardless of the actual receipt of payment. In this case, the higher the risk of unpaid debt, so the company is allowed to create a reserve fund, reducing taxable profits.

Calculation and planning

Revenues are the main source of financial revenues for the company, the stability of turnover and work in general depends on its regularity. That is why it is extremely important to timely analyze the revenue from sales and plan its receipt.

The analysis is based on the difference between the volumes of produced and sold products. In addition, it is important to consider the factors that affect the receipt of revenue. The main reason for the low level of profitability of an enterprise may be the release of unclaimed or substandard products. To monitor this situation, market research is necessary. In an effort to increase revenue, the company can improve the quality of products, reduce production rates (with overproduction), change or expand the assortment based on the results of such analysis.

In addition, the revenue level can be affected by:

• Interruptions in work caused by various causes;
• Erroneous price policy;
• Wrong marketing approach;
• Violations of contractual terms by suppliers, carriers or buyers;
• Inflation, changes in legislation.

Among these factors are those on which the entrepreneur himself can influence, and there are those independent of him. However, a regular analysis of revenue can, for example, show the need to change the supplier of raw materials or the carrier. After all, on the quality of partnership relations the result of work depends not less than on the characteristics of the products or services provided.

Planning the proceeds, you must make three calculations. The first is a pessimistic forecast, suggesting the worst scenario. The second is optimistic, taking into account the ideal confluence of all circumstances. The third is the real calculation, which is something middle between the first two. It should be guided in the process of activity.

And yet, the basis for planning is already the revenue from the sale of products. The formula for calculating it is simple: РхЦ = В, where "Р" means the sold products in units (or the work performed, services rendered in quantitative terms), "Ц" means the price for each unit, and "B", respectively, the revenue received. Only after performing the calculation and conducting the analysis, it is possible to build the growth prospects of the enterprise.

Distribution

Having understood what revenue is, it is necessary to understand its further distribution. The initial source of the enterprise's resources is the authorized capital. In the course of further activity, all necessary payments are made directly from the cash register. Thus, revenue covers the necessary payments to the budget, tax and social payments, utilities and raw materials costs, staff salaries and other costs associated with the release and sale of products. Only what remains after the production of all necessary payments is the net income or profit of the enterprise.

From all that has been said above, it is clear that the goal of each entrepreneur's work is to increase the total income. In order for this growth to be stable, it is important to clearly understand what revenue is and what factors influence its receipt. Competent analysis and planning to a large extent help the company to work successfully and develop, and the owner - to get a well-deserved profit.