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Meanings and Sources of Revenue:

In common language revenue means tax or income. But in a business concern revenue means sales proceeds of goods or services or it is the price of goods sold or services rendered to the customers. According to American Accounting Association, "revenue is the monetary expression of the aggregate of products or services transferred by an enterprise to its customers during a period of time". When a business delivers goods to its customers or renders services to them, it either receives immediate payment in cash or acquires an account receivable (debtor) which will be collected and thereby become cash within a short time. The revenue for a given period is equal to the inflow of cash and receivables (debtors) from sales made in that period. Thus:

Revenue = Amount received in cash + Receivable

Sources of Revenue:

The sources of revenue are:

  1. Sale proceeds of goods or services (Sales A/C).
  2. Interest received on investment (Interest A/C credit balance).
  3. Dividend received on share (Dividend A/C).
  4. Discount received from creditors (Discount received account credit balance)
  5. Commission received from customers (Commission A/C credit balance).
  6. Profit on sale of assets (except goods).

Various terms are used to describe different types of revenue. For example business which sells goods rather than services will use the term "sales" to describe the revenue; revenue earned by a property dealer may be called "commission earned"; in the professional practice of lawyers, chartered accountants, the revenue is called "fees earned".

Every business has one or two major sources of revenue and may also, have some minor sources of revenue also. So, the sources of revenue may be divided into two categories.

1. Operational Sources or Major Sources or Direct Sources of Revenue:

The revenue earned out of normal business activities belongs to this source. For example, for a trader, sale proceeds of goods is a major source of revenue; for a property dealer, commission earned is a major source of revenue, for a lawyer, fees earned is a major source of revenue.

2. Financial Sources or Minor Sources or Indirect Sources of Revenue:

Any revenue arising from sources other than normal business activities belongs to this category. e.g. interest, dividend, profit on sale of fixed assets etc.

Thus for a trader;

sources of revenue

Definition and Explanation of Final Accounts
Trial Balance - A Starting Point for Final Accounts
Meanings and Sources of Revenue
Direct and Indirect Expenses
Matching Revenue and Expenses
Trading Account
Profit and Loss Account
Difference between Trading Account and Profit and Loss Account
Difference between Gross Profit and Net Profit
Balance Sheet
Difference between Trial Balance and Balance Sheet
Example of Trading and Profit and Loss Account and Balance Sheet

 

 

A D V E R T I S E M E N T

 

Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 

 

 

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