Revenues VS Sales: A Demystification of Two "Synonymous" Terms

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Accounting professionals have a large repertoire of terms and jargons designed to fence the uninitiated out from the agreeably complex yet simple world of accounting. Many of these accounting terms could be found in the simple income statement of companies; yet, none of the terms has the capability to confuse the uninitiated more than the concepts of Revenues and Sales.

Revenues: can be defined as the total income that a business generates over a given time (monthly, quarterly, or yearly). Revenue is usually subdivided into gross revenue and net revenue. However, when the word "revenue" is used alone, it usually refers to the total or gross revenue.

Sales: can be defined as the income generated by a company when it "SELLS" its goods or services over a given period. Sales can also be subdivided into gross sales and net sales. However, when the word "sales" is used alone, it usually refers to the total or gross sales.

Why You Need to Understand the Difference between Revenue and Sales

Many people often erroneously assume that revenue and sales are synonymous; yet, nothing could be more misleading and further from the truth.

Sales are connected to the volume of products and services that you "Sell". Sales recorded only after someone "PAYS" for your goods or services.

Revenues on the other hand are funds you generate from sales and from non-sale moneymaking stuff such as commissions, interest earned, royalties and fees among others.

The main difference between sales and revenues that you must understand is that sales are more closely tied to the core business performance of a company than its revenue.

For instance, if you own an ice cream stand and you sell 50 cones for N100 each in December, and then you sell 50 cones for N100 each in January, your sales still remains 50 cones each month while your total sales from December through January is 100 cones. Now, let's assume that your ice cream supplier gives you a bonus of N5 on each cone that you sell in January; you'll now have an additional N500 for the 50 cones you sell in January.

In essence, your revenue for December is N2500 while your revenue for January is N3, 000. A glance at your financials will suggest that your business is improving while in the actual fact, there has not been any improvement in your "core" business because you are still selling 50 cones of ice cream each month.

Image Credits: business2community.com
 
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