Revenue Definition, and Different Types of Revenue in Economics

Definition of Revenue:

According to the International Financial Reporting Standards (IFRS), Revenue is the inflow of economic benefits arising during the ordinary course of an entity's economic activities.

The inflows should directly come from its product-selling activities or services rendered. They should not include other income.

According to the above definition, Revenue = Gross Receipts from sales or services. Other receipts like interest, royalties, and rents (which are not part of their core business) are treated as Misc. Income/Receipts.

Revenue is also referred to as Gross Income or Gross Receipts.

Generally, revenue is measured as receipts accrued from sales or services performed during a specific period of time - say, a particular week, a particular month, or a year. It is irrespective of whether payment is received during that same period or not.

IFRS Definition vs Accounting Concept of Revenue:

But, for accounting purposes, while preparing the Profit and Loss/ Balance Sheets, or Revenue Budgets, all types of income are considered as revenue. So, an accountant takes receipts from the sale of assets, interest received from banks, and rent receipts, etc., as Revenue in his books.

Revenue is the income earned by a business enterprise, organisations, or governments. Revenue may be either in the form of sales proceeds from goods and services sold, or in the shape of receipts from other activities and sources of any enterprise or government. So, for business organisations, revenue includes sales income and/or fees received for services rendered.

In the case of Governments, revenue includes receipts from the collection of taxes, duties, and Bonds and Debentures, if any, invested by them. It can include even donations received from others, funds received from other social activities, etc. All these receipts are collectively known as revenue.

Financial Statements prepared by companies for arriving at Net Profit/Loss consider income received from other sources also as their receipts in order to tally them against their total expenditure.    

Different Types of Revenue in Economics

There are different concepts of revenue according to the nature of organisations.

Sometimes, revenue can be referred to as business revenue, government revenue or association revenue based on the nature of organisation or enterprise.

Business Revenue

Business revenue refers to income or receipts from normal business activities of any organisation. Businesses that indulge in the manufacturing and/or selling of products, or in providing services to their clients, receive income either in the form of sales or as fees for services. This income is known as 'business revenue'.

 

The main point is that the income should be from their primary business activity. 

If one is engaged in a rental business, then his business income is the rent received. 

If it is a financial institution, then its income will be from interest and other charges received from lending loans.

This business revenue can be classified into two parts: sales income and other income.

1) Sales Revenue or Sales Income;
Sales revenue denotes the income received by way of sales of goods or services. 

For a manufacturer, it is income from the sale of produced goods. 

For a grocery store or merchant, it is income from the sale of provisions or merchandise. 

For a banker, it can be the sale of loans. 

For a service provider, such as a consultant, barber, or cobbler, it is the service charges received. 

So, sales revenue is their business income.

2) Other Revenue or Other Income:
While performing a business, you may receive some income that is not directly related to your primary business activity. 

For example, you are running a manufacturing business. You sell your produce and receive the revenue. Now, you may not be spending all that income for your business. 

You may deposit some money in fixed deposits or invest in other investments. So, you will be receiving interest from these investments. It is not your sales income. It is to be termed as 'other income'.

Similarly, you may sell some old machinery or assets and buy new ones. This sale of old assets is not your primary sale. It is your 'other income'.

If you can rent a part of your building or any machinery to others for a short period, the rent received is also treated as 'other income'.

Government Revenue

Government revenue is entirely different from business revenue. Government revenue is the money received from various taxes and duties imposed by the government to meet its expenditure in the running of the government and funding various development programs of the country.

The receipts include collections from Income Tax, Goods and Services Tax, Sales Tax, etc., and duties such as Customs Duty, Excise Duty, Export/Import Duty, etc. 

Government revenue may also include income generated through financial and banking operations and through the railways and tourism departments. All these are part of government revenue intended for spending it back on public works and other welfare activities for the country.

Association Revenue (Social & Non-Profit Organisations)

Association revenue is that type of revenue generated by non-profit organisations and public associations like cooperatives and NGOs. It is a fund created through non-business-oriented activities for a common cause of the members of the organisation or for public welfare. The revenue generated includes membership fees of members, donations or charity funds received from outsiders, and any financial help received from governments, etc. They may also generate revenue through sponsorship of cultural or other programmes.

For information regarding the Concepts of Total Revenue, Average Revenue, and Marginal Revenue,

please go to this link: Concepts of Revenue and Calculation formulae