Table of Contents

Revenue Vs Profit? What is the Key Difference?

What is Revenue?

Revenue is the total amount received or receivable or realized from the sale of goods or services.
Or
Revenue means the amount of the business earned by selling its products or providing services to customers. Revenue can be operating as well as non-operating. For example-

Amount received from the sale of goods
Rent received
Commission received
Interest received
Dividend received
Royalties received
Amount received from rendering services

Operating revenue- Operating revenue is the revenue that a business enterprise generates from its primary business activities.

Non-Operating Revenue- Non–operating revenue is the revenue earned by activities other than the primary activities of a business enterprise.

What is Profit?

The excess of revenues over its related expenses during an accounting year is profit.
Or
Profit is the excess of total revenues over total expenses(costs) of a business enterprise for an accounting period.

Profit = Revenue – Expenses

Normally profit categorized as-
1. Gross Profit
2. Net Profit
3. Operating Profit
4. Revenue Profit
5. Capital Profit

1. Gross Profit- Gross profit is the difference between Net revenue from operation over the cost of goods sold (COGS). Gross profit, also called gross income, is calculated by subtracting the cost of goods sold from(sales- sales return) net revenue.

Gross Profit = Net Sales – Cost of Goods Sold

Net Sales = Sales – Sales Return

Net Purchase = Purchase – Purchase Return

Cost of Goods Sold = Opening Stock + Net Purchase +Direct Expenses – Closing Stock

2. Net Profit- The net profit is the excess of revenue over expenses during an accounting year.

Net Profit = Gross profit + Other Income – Indirect Expenses

3. Operating Profit- Operating profit is the excess of operating revenue over operating expenses. Operating profit is the profit earned purely through the normal operating activities of the business concern.

Net operating profit = Net Profit after Tax+ Non-Operating Expenses – Non-Operating Incomes

Net operating profit = Gross Profit + Operating Income – Operating Expenses

4. Revenue Profit- Revenue profits are the profits that are earned in the normal course of business.
5. Capital Profit- Capital profits are the profits that do not arise from day to day operations of the business. Examples:

(i) Profit on sale of fixed assets.
ii) Premium received on issue of shares/debentures
(iii) Profit on re-issue of forfeited shares
(iv) Prior incorporation profits etc.