Revenue - Components of Financial Statements, Financial Analysis and Reporting | Financial Analysis and Reporting - B Com PDF Download

Revenue is the money a business earns before paying expenses. A business typically classifies its revenue as either operating revenue or non-operating revenue and reports these in separate sections of its income statement. Operating revenue is generated from selling products and services in your main line of business. Any refunds or discounts provided to customers reduces operating revenue. Non-operating, or other, revenue arises from activities outside of your normal business, such as renting out part of your office. You can use your small business’ income statement to calculate the total revenue you earned during an accounting period.

1. Gather your income statement from the month, quarter or other period for which you want to calculate total revenue.
2. Find the amount of product revenue you generated during the accounting period on the income statement. Product revenue is the money you earned from selling inventory, such as books or hats. Product revenue typically appears as “gross sales” or “sales” in the first section of the income statement called “operating revenues” or “revenues.”
3. Identify the amount of service revenue you earned in the same section. Service revenue includes the money you earned by completing work for customers, such as altering clothing in a tailoring business. This revenue might appear as “fees earned” or “service revenue.”
4. Find the amount of sales returns and allowances and the amount of sales discounts you had during the period. Returns and allowances represent money you refunded to customers. Sales discounts represent the amount by which you reduced the invoices of customers who paid early.
5. Add together your product revenue and service revenue. Subtract the amount of sales returns and allowances and the amount of sales discounts from your result to calculate your total operating revenue. For example, assume your small business generated $10,000 in product revenue, produced $2,000 in service revenue, had $200 in sales returns and allowances and gave $500 in sales discounts. Add $10,000 to $2,000 to get $12,000. Subtract $200 and $500 from $12,000 to get $11,300 in total operating revenue. This means you generated $11,300 in total revenue from your primary business activities.
6. Locate the amount of non-operating revenue you earned, listed in a separate section below your operating expenses. Add the non-operating revenue to your total operating revenue to calculate the total revenue you earned during the period. Continuing the example, assume your small business earned $300 in interest revenue from a bond investment. Add $300 to $11,300 to get $11,600 in total revenue from primary and secondary business activities for the period.