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:
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Revenue = Amount received in cash +
Receivable |
Sources of Revenue:
The sources of
revenue are:
- Sale proceeds
of goods or services (Sales A/C).
- Interest
received on investment (Interest A/C credit
balance).
- Dividend
received on share (Dividend A/C).
- Discount
received from creditors (Discount received
account credit balance)
- Commission
received from customers (Commission A/C credit
balance).
- 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;
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