The difference between revenue and income. What is the Difference Between Profit and Revenue Profit as the Difference Between Income and Expense

If you are an active investor who independently researches a company, then you cannot but be interested in concepts such as its income, profit and revenue. But are they synonymous? Can revenue be more than revenue? Why can't all spending be considered an expense? Is it possible to legally reduce profits and why do it? You will find answers to all these questions in this article.

Revenue and income

Income represents the flow of assets or a reduction in accounts payable leading to an increase in capital... The exception is the contributions of the owners.

According to PBU 9/99 "Income of the organization", two large groups of income can be distinguished:

Income from the main activity (revenue);
Other income.

There is no definition of “revenue” in legislative acts. But PBU 9/99 provides examples of receipts that are revenue for various organizations. Based on this list, the following definition can be given.

Revenue is the full amount of claims presented to customers for products sold (or services rendered). At the same time, the sale of these products should be the main activity of the company.

Example... Consider the activities of a retail grocery store.

Revenues are receipts from the sale of food products.

Receipts that are not revenue:

from the lease of free retail space;
for the sale of unused warehouse and commercial equipment;
interest on loans to third parties;
fines from suppliers for violation of contract terms.

Summarize. Income is a broader concept. In addition to revenue, it includes miscellaneous income. This means that revenue will always be greater than or equal to revenue.

Profit

If revenue and income reflect the receipt of funds (or decrease in debt), then profit shows the financial result of the company. In a simplified form, its calculation is as follows:

Profit = Income - Expenses

But in practice, everything is somewhat more complicated.

Why not all expenses can be considered expenses

According to Russian law, all companies are required to pay income tax: under the general taxation system, its rate is 20%. Naturally, few people want to give a fifth of their profits to the state - and here the business owner is tempted to write off the maximum possible sums for expenses. For example, write out a large monetary reward to yourself.

To avoid such abuse, the tax code clearly defines what can be attributed to expenses. In the example with remuneration, it can be attributed to expenses only if the possibility of its accrual is spelled out in the employment contract, the provision on bonuses or in other local regulations. Otherwise, you will also have to pay tax on this amount.

General requirements for costs are given in Art. 252 of the Tax Code of the Russian Federation. There are two of them:

The costs must be reasonable, i.e. all expenses must be economically justified. Of course, the business owner can spend money as he wants, but the tax authorities will not deduct such expenses, and tax will be charged on them.
The costs must be documented and their price must be in line with the market. For example, if the company paid 300 thousand rubles for the repair of the premises, and the average price of such repairs is 100 thousand, then the tax office may have questions.

What cannot be considered an expense

Article 270 of the Tax Code of the Russian Federation contains a list of expenses that are not taken into account when calculating taxable profit. It does not prohibit making these spending. However, they will not affect the amount of the tax. These costs include, for example:

Dividends paid to shareholders.
Penalties transferred to the budget.
Acquisition of shares in other companies.
Gratuitous transfer of property.
Expenses for the creation or acquisition of property subject to depreciation.
Contributions to public organizations and trade unions.
Financial assistance and other remuneration of employees not provided for in employment contracts.

How to legally reduce profits

It would seem that the legislation clearly defines the procedure for recognizing income and expenses. However, there is still room for maneuver and tax optimization can help the company save significant amounts. Here is just one example of legal optimization.

The organization decides to reconstruct the production building. For this, an agreement is concluded with a third-party company for reconstruction. As a result of the work performed, an object is obtained. Accordingly, expenses cannot be written off in the current period, since the cost of fixed assets is written off through depreciation. It turns out that the organization spent a lot of money, but on paper it still remained profitable, since the write-off of these costs will take many years.

The organization can conclude two contracts with the contractor:

For reconstruction. This will include creating a project, dismantling walls and floors, construction work, redevelopment, etc.
For repairs. This contract includes painting the walls, replacing floors, plumbing, windows, installing hardware, etc.

There is nothing to be done about the reconstruction: these costs will have to be written off by means of depreciation. But the organization will be able to take into account the costs of repairs immediately after they are made. This will reduce the income tax in the current period and leave the saved money in circulation (which actually means getting an interest-free loan from the state).

But you can't do this

The example from the previous chapter does not violate any law of the Russian Federation and is completely legal. For clarity, we will give an example of an illegal reduction in taxable profit.

The manufacturing organization sets up its subsidiary in an offshore zone with a zero income tax rate. All manufactured products are sold at cost to their subsidiaries. That, in turn, is engaged in the implementation of the final consumer. As a result, the company located in the Russian Federation, according to the documents, is barely making ends meet, and a small offshore company makes huge profits.

Naturally, this method is illegal. Yes, the company has every right to sell its products to anyone, but the tax authorities will very quickly become interested in pricing methods. If the selling price turns out to be significantly lower than the market price, and even the connection between these two companies is revealed, the organizer of such a scheme will face serious troubles. But it is no secret that in Russian realities, connections at the top play an important role.

An example of calculating indicators

Consider, as an example, the reporting of the Magnitogorsk Iron and Steel Works (MMK). The screenshot shows a fragment of his reporting for the first quarter of 2019. Negative values are indicated in parentheses.

Revenue - $ 1836 million

Income - $ 1,844 million ... This includes:

revenue - $ 1836 million
other operating income - $ 3 million
financial income - $ 5 million

Expenses - $ 1,564 million ... These include:

Cost price - $ 1321 mln.
General and administrative expenses - $ 51 million
Selling expenses - $ 141 million
Change in expected credit losses - $ 6 million
Finance expenses - $ 7 million
Impairment losses and provision for land reclamation - $ 2 million
Foreign exchange expense - $ 14 million
Other expenses - $ 22 million

Taxable income - $ 280 million ($ 1,844 million - $ 1,564 million)

This taxable profit was subject to income tax of $ 55 million.

Profit for the period was $ 225 million.

Let's sum up

Revenue Are receipts from the main activity of the company.

Income Is the total amount of receipts. Thus, income is a broader concept. It can be equal to the revenue or be greater than it.

In these definitions, receipts mean not only the receipt of funds, but also the occurrence of receivables or a reduction in accounts payable.

Profit Is the difference between income and expenses for a certain period. It shows the results of the business and can be either positive or negative (loss).

For a novice investor, it is important not to confuse revenue and profit: the former may well be much larger. In our example, the revenue exceeds the profit by more than 8 times.

The main goal of the financial and economic activities of each commercial organization is to make a profit, which is one of the key indicators of such activities (Article 50 of the Civil Code of the Russian Federation). Also, one of the main indicators of the company is its revenue. What is the difference between revenue and profit, we will consider in this consultation.

Revenue, profit and income: what is the difference

In order to answer the questions of how income differs from revenue and profit, as well as how revenue differs from profit, let's figure out how revenue and profit are formed.

The income of the company is recognized as receipts of funds, other property and receipts from the repayment of obligations, which lead to an increase in the capital of this organization, with the exception of the contributions of its members (clause 2 of PBU 9/99).

The income of the organization is divided into income from ordinary activities and other income (clause 4 of PBU 9/99).

The company's income from ordinary activities is the proceeds from the sale of goods, receipts from the performance of work or the provision of services (clause 5 of PBU 9/99).

Revenue consists of the amount of funds received, other property, calculated in monetary terms, and the amount of accounts receivable (in the part not covered by the receipt) from the company's main activity, with the exception of the following receipts (clause 3, clause 6 of PBU 9 / 99):

amounts of VAT, excise taxes, export duties and other similar mandatory payments;
amounts under agency agreements, commission agreements and other similar agreements in favor of the principal, principal, etc .;
amounts received in the order of prepayment for goods, works, services;
the amount of advances in payment for goods, works, services;
deposit;
amounts received as a pledge, if the contract provides for the transfer of the pledged property to the pledgee;
amounts received as repayment of a loan, a loan provided to the borrower.

In addition to income in the form of proceeds from the sale of goods, performance of work and provision of services in the main type of activity, the income of the organization is also other receipts from other types of activities (investment, financial), with the exception of receipts specified in clause 3 of PBU 9/99 (p. 4 PBU 9/99).

In particular, other income includes income from the provision of their property for temporary use for a fee; income from participation in the authorized capital of another organization; interest on loans and borrowings provided; fines and penalties for violation of the terms of contracts (clause 7 of PBU 9/99).

That is, income is not revenue or profit. These are all receipts that lead to an increase in the company's capital.

The profit of the company is defined as the positive difference between the income received (which includes the proceeds from the sale of goods and services, income from renting out property, interest income, fines received, etc.) and the expenses incurred aimed at obtaining these incomes.

What is the difference between revenue and profit (in simple words)

So, income is revenue from the sale of goods, performance of work, provision of services, as well as other non-operating receipts (clause 4, clause 5 of PBU 9/99, clause 1 of article 248 of the Tax Code of the Russian Federation, clause 1 of article 249 of the Tax Code RF).

The difference between revenue and profit is as follows.

Revenue is the volume of sales, the amount of money received from the sale of manufactured or previously purchased products, services rendered, work performed (Article 249 of the Tax Code of the Russian Federation).

Profit is a part of income (including proceeds from the sale of goods, works, services) remaining after reimbursement of costs aimed at obtaining it (Article 247 of the Tax Code of the Russian Federation).

Unlike profit, revenue cannot be negative or zero.

Let us explain with an example. The organization sold goods worth 100,000 rubles per month. This is the income of the organization. The cost of purchasing these goods amounted to 50,000 rubles. Other expenses of the organization per month - 20,000 rubles. Then the profit of the organization for the month will be:

RUB 100,000 - 50,000 rubles. - 20,000 rubles. = RUB 30,000

Some inexperienced entrepreneurs, as well as a lot of other categories of people remote from the subject of business, do not understand at all how revenue and profit differ, the difference between them is very significant.

In this regard, many rather naive citizens misjudge the potential successes of their activity and expect unrealistic results and incomes from entrepreneurial activity.

All of this can lead to significant disappointment, an incorrectly drawn up business plan, and in some cases even bankruptcy. That is why it is important to be able to calculate how profit is obtained and not to confuse it with other concepts.

Before starting an active commercial activity, it is imperative to understand a little about how the economy works, to consider the basic concepts set forth even in simple terms.

The concepts of revenue and profit are not the same thing, so this issue should be well studied and not be an amateur in it.

What is the difference between revenue and profit

The considered concepts overlap with each other quite strongly, but they are not identical. Even large corporations can have a huge turnover of goods and billions of dollars in revenue, and at the same time there is a very real danger of being bankrupt.

There are a lot of different economic terms in trade, which are often even manipulated, leading people to misunderstanding and inability to understand the real economic situation. But if for an ordinary citizen this is still excusable and not dangerous, for a businessman ignorance is unacceptable.

The profitability of any business is described by the amount of profit that it gives - the difference between the total revenue received by the company and the costs that have to be made to obtain it.

Simply put, profit is the total income of the company minus all necessary expenses (purchases of goods and materials, payment of taxes, salaries, etc.).

Revenue is defined as the sum of all income that the company receives after the sale of goods and services, excluding any costs and expenses.

As you can see from these concepts, the difference between them is really very significant. Every businessman seeks to increase not so much revenue, but net profit, because it is for the sake of it that the whole business is brewed.

It is important to understand: the ultimate performance of any business always depends on its profitability.

What does the firm's profit consist of

Profit is not as simple a phenomenon as it might seem at first glance.

This definition includes such basic components as:

net profit;
gross;
balance sheet;
margin.

All varieties of the term have their own distinctive characteristics, and usually accounting practice considers them separately.

Profit is the ultimate goal of any institution, unless it is a government organization. It consists of all financial and, possibly, non-financial, and other material receipts that have become the property of the company.

To get a specific number of a given value, it is necessary to deduct the perfect costs from all revenues to the company's budget: for raw materials and materials, salaries, taxes, fuel for transport, interest payments on loans, etc.

The resulting amount ultimately equals the firm's net profit.

What is sales profit

This concept denotes the amount of money received from the sale of the company's goods.

To estimate this value, you need to know the following data:

What product will be sold, its features and popularity in the market.
The cost of goods sold, specifically the one at which goods will be sold in a given firm.
Also, sales profit is calculated taking into account the volume of successfully sold goods.

To assess how much money the company will receive even before the sale of the entire planned volume of production, such an economic unit as profitability is taken into account. To do this, it is useful to study the data of past periods of activity and carry out the calculation using the following formula:

Profit from sales = volumes of goods sold * average price * profitability of the past trading period

To evaluate the parameter under consideration even more accurately, you can use a lot of existing analysis methods and financial programs.

It is worth noting: there is also a nominal profit - it does not take into account the rise in prices and inflation, as well as a number of other rather significant parameters.

What is gross margin

This concept, in a sense, shows the success of trading, as it denotes the difference between the proceeds received from the sale of goods and its cost - the means spent on production, packaging and delivery to the final consumer.

Gross and operating profit should not seem to be the same thing - in the latter case, the full range of taxes, penalties, all kinds of interest on loan obligations and fines are not taken into account.

As for the cost, it can be considered in completely different ways, for example, when it comes to trade and full-fledged production.

To determine the cost of goods from the factory, you need to take into account the costs of raw materials, raw materials, lighting and heat required for the actual production of the goods.

Consider: if an employee receives a certain amount for each unit of goods, his salary is also included in the cost of the product.

What is net profit

Only when the gross margin is estimated is net profit.

The general method for calculating it looks like this: the gross income, which was discussed in the previous paragraph, is taken, and all so-called operating expenses, as well as taxes, are deducted from it.

Operating expenses include the following expenses:

payment of transport services;
payment of rent of premises;
the issuance of wages to the labor collective, etc.

In terms of taxes, you need to deduct various interest on loans, fines and penalties, directly government taxes and other similar things.

When all these costs are accounted for and calculated, then the positive difference between gross profit and them will be net profit.

Revenue types

What, in turn, are the types of revenue? There is some classification here, but it depends more on the type of activity of a particular person.

The following types are distinguished separately:

Income from the main activity of a company or an individual entrepreneur received as a result of the sale of goods, the provision of services, the performance of any work.
The proceeds from investments made is another matter. This can be the sale of securities, fixed assets, and so on.
There is also revenue from financial activities.

If desired, an individual can also use the concept of annual revenue to indicate the amount of funds received over a certain period.

The total revenue is the sum for all the specified areas and most accurately characterizes the activities of the company.

Sales revenue - what is it

Revenue from the sale of a good or service is the ordinary income from the sale of it.

The receipt of such revenue is very clear and its assessment should not cause any difficulties at all.

The cost of goods always appears in any transaction or contract, so it is not difficult to calculate the parameter in question.

Sales revenue (B) is equal to:

B = quantity of goods sold * its value

The average price may appear here, but the result of the assessment will be approximate, which in some cases is quite acceptable.

As a conclusion, it should be noted that entrepreneurial activity is a rather interesting, but at the same time, complex process that must be constantly monitored and evaluated.

The profit required by every business should not get confused in the understanding of people with ordinary revenue. It consists of many of the factors discussed above, and the maximum performance of a business is assessed precisely by its size.

Profit and revenue are two different concepts, but they accompany the activities of any company all the time. Their meanings are quite close to each other, as they are often used in the same context. But there is a difference between them.

Revenue

The company's revenue is cash receipts from the sale of a product, service or work on the market. It represents the result of the activities of the entire company over a certain period of time. In other words, the revenue is called the gross income of the company.

Revenue is reflected in the accounting on account 90 "Revenue", serves to determine the amount of tax paid by companies operating under the simplified tax regime.

Revenue is the most common indicator of a company's performance. However, not everything can be considered revenue. As a rule, these are receipts from the main activity. When compiling the balance sheet, revenue is recorded net of indirect taxes, in particular VAT, which is actually withheld from the buyer.

Revenue can be projected. Based on data from previous sales and cash flows, the accountant can forecast expected revenue in the next reporting period. The total revenue of the enterprise for the reporting period consists of:

Revenues from core activities (sale of goods, provision of various services or performance of work);
Income from investment activities (financial result from the sale of non-current assets or the sale of any securities that are owned by the company);
Income from the financial activities of the company.

Profit

Profit is an important indicator of a company's performance. It can be economic and accounting.

Economic profit - the difference between the total income of the enterprise and costs (explicit and implicit)... This indicator shows how efficiently the company worked in a certain period of time. The economic profit can be distributed among the founders. Accounting profit - profit used for accounting purposes. Tax is deducted from it, and it is reflected in the Profit and Loss Statement. It is equal to the difference between total income and the explicit costs of the enterprise.

The main profit of the organization consists of the indicators:

Profit (or loss) from core activities (sales of products, provision of services or performance of work);
Profit (or loss) from ancillary activities (for example, profit from renting out a warehouse or performing additional work under a contract).

The relationship between profit and revenue is that profit is the difference between total revenue and total costs of the enterprise. Profit can be negative (loss), while revenue is not.

Based on historical performance, an accountant can predict future profit. To make such a forecast, it is necessary to take into account not only the expected income (future revenue), but also the expected expenses, as well as the market conditions and projected changes in the market.

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