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Reviewed by Feb 01, 2023| Updated on
Income is the revenue generated from regular business transactions, which involves deductions and discounts for returned products. When the net profit is calculated, it is the top line or gross income amount from which the expenses are subtracted. Revenue on the income statement is also known as sales. Taking positive revenue sooner is essential for a startup.
Revenue is cash brought into a company by its operations. Revenue is also known as income as in the price-to-sales ratio—an alternative to the price-to-earnings ratio that uses the denominator revenue. Depending on the accounting system used, various methods of measuring revenue exist.
Accrual accounting may require credit purchases as income for the products or services sold to the customer. It is important to review the cash-flow statement to determine how quickly a corporation receives the money owed.
On the other hand, cash accounting would only count transactions as income after receipt of the payment. Money charged to a company is referred to as a "receipt", Receipts may be rendered without tax.
For example, if the customer is paying in advance for a service that has not yet been made or delivered, it contributes to receipt but not revenue. Revenue is known as the top line since it first appears on an income statement of a company. Net income is revenue minus outlays. When sales surpass expenditures, there is a benefit.
A corporation raises sales and/or reduces costs to increase profit and thus, earnings per share for its shareholders. Investors also independently view a company's sales and net income to assess a company's health.
Net income will rise when revenue stagnates because of cost-cutting. That kind of situation does not bode well for the long-term growth of a company. While public corporations announce their quarterly earnings, sales and earnings per share are the two statistics that attract the most attention.