What is revenue?

Definition

Revenue is the value of goods and services the shop earned in a period, measured when the work is done, not when the register is counted. On the books, this is the top line of the Income Statement, not cash in the till.

A flower shop that delivers a wedding order has earned the sale. The invoice may still be unpaid.

Cash-basis books often record the same sale only when cash arrives. Accrual books record it when it is earned, and they hold the unpaid piece in accounts receivable.

This line is earned sales, not a bank deposit. A shop can show a strong week on the P&L while the checking account is still waiting on a client check.

Where it shows up

Balance Sheet: Related to receivables when the sale is earned but not collected.

P&L: Located at the top of the Income Statement.

Cash flow: Decreases in receivables, reported cash from operating activities increases.

See also: Income Statement · Revenue Recognition · Gross Profit

When you look at your Income Statement, this line sits at the top, before costs. The period's earned sales are what start the walk down to profit.

When revenue is high, the shop delivered more work in the period. When it is low, fewer sales were earned, even if old invoices were collected.

The Balance Sheet does not list revenue as a permanent account after the close. Unpaid earned sales sit in accounts receivable until cash arrives.

The profit and loss statement is the home for this total. After the close, the period's net result flows into equity, and the revenue accounts themselves reset.

On the Statement of Cash Flows, collecting those receivables is an operating inflow. Earning the sale without collecting it does not, by itself, raise cash.

How it works

The shop delivers flowers, records the sale, and bills the customer. The bookkeeper debits cash or accounts receivable and credits a revenue account.

That credit is earned sales. It is not the later bank deposit if the invoice is still open.

A cash sale posts debit cash and credit revenue in one step. An invoiced sale posts debit accounts receivable first, and cash comes later as a collection, not as a second sale.

Returns, discounts, and allowances can bring the billed total down to net revenue. The starting billed amount is often called gross revenue, and this page is about the earned total that starts the P&L.

Bookings are not this line. A signed contract for a wedding next spring is not revenue until the work is earned under the shop's rules.

Stay with the earned sale when you read the week. The bank balance explains what was collected, and revenue explains what was delivered.

Cost of goods sold is the flowers and supplies that went out with those sales. Gross profit is this line minus that direct cost, and neither of those is the sale itself.

After the close, revenue accounts return to zero. The period's profit lands in retained earnings, and next month's sales start the top line again.

Do not treat a customer deposit as revenue if the arrangement is still undelivered. That cash is a liability until the work is earned.

Keep invoices and delivery logs that support the period total. Anyone tying the P&L to the register and to receivables should be able to see which sales were earned.

Example

A flower shop delivers a $1,200 wedding order on Saturday and sends the invoice the same day. Cash will arrive the following Friday.

The delivery is recorded:

Debit: Accounts receivable $1,200

Credit: Sales revenue $1,200

Revenue for the week includes the $1,200. Cash has not moved yet.

When the check arrives on Friday, the shop debits cash and credits accounts receivable. That collection is not a second $1,200 of revenue.

If a walk-in pays $80 cash for a bouquet the same Saturday, that $80 is also revenue, recorded with a debit to cash. Both sales are earned, and only one was collected on the spot.

The Income Statement for the week shows $1,280 at the top. The bank rose by $80 until Friday, then by another $1,200, without booking the collection as a new sale.

Common mix-ups

Revenue is not cash collected. Cash collected is a bank movement, and revenue is the earned sale, which may still sit in receivables.

Revenue is not bookings. Bookings are signed work, including jobs not yet delivered, and this line waits until the sale is earned.

Revenue is not profit. Profit is what remains after costs, and this line is the starting total on the Income Statement.

Related terms

• Income Statement: A statement showing revenue earned and expenses incurred over a period, ending in net income.
• Gross Revenue: Total billed sales before returns, discounts, and allowances.
• Net Revenue: Gross sales after returns, discounts, and allowances are subtracted.
• Revenue Recognition: The rules for deciding when earned revenue may be recorded.
• Invoice: The document that bills a customer and creates a receivable.
• Cost Of Goods Sold: The direct cost of the products sold during the period.
• Gross Profit: Revenue minus the direct cost of delivering it.
• Accounts Receivable: Money customers owe the business for goods or services already delivered.
• Bookings: The contract value signed in a period, whether or not it has been billed.