What is the difference between income, turnover and income?
When setting up a company, it is worth gathering basic knowledge and getting to know the concepts related to its operation. Find out what it is all about and how income, turnover and income are different. You will find it useful to differentiate between these terms in terms of law and economic principles.
One of the activities connected with running one’s own company, which many future entrepreneurs associate negatively, is accounting. It requires a lot of knowledge and knowledge of current legal regulations and the Accounting Act. Of course, there are several possibilities to solve the obligation of keeping accounting records in a company, e.g. by employing an accountant, using the services of an external accountant or using Internet accountancy offices. Nevertheless, every entrepreneur should have at least a basic knowledge base in order to be able to use professional terms in everyday business.
For example, if you want to know what your company’s profits are, you may think of a few words such as revenue, income or turnover. It should be remembered, however, that these terms are by no means synonymous and cannot be used interchangeably. Unfortunately, it often happens that they are used incorrectly, which may mislead the recipients. Imagine a situation where someone tells you they had 300,000 income this year. Surely a lot would treat this information as sufficient. However, this is not fully reliable information.
What is revenue
Revenue – revenue shall mean any financial inflow obtained from the conducted activity to which a sales document has been issued, i.e. e.g. a VAT invoice, bill or receipt. Please note that you have a limited period of time in which to issue a sales note. It is also interesting to note that an invoice receivable that has not yet actually been paid is also regarded as revenue. This is because an invoice can also be issued before the money is actually received by the company. It is also important that in the case of companies that are not rescuers, the gross amount shown on the invoice is considered as revenue. Revenue is always measured for a given period, for example a month or a year.
Company loans taken or shareholders’ own contributions shall not be regarded as revenue.
Revenue is usually the value of products, goods and services sold. More specifically, according to the Income Tax Act, we classify income as primarily:
money received, monetary values for products and services sold
benefits, goods and rights free of charge or partly for consideration
Deductible or refunded value added tax (VAT)
There are three types of income in economics:
total revenue – the value of products and services sold, calculated by multiplying the price by the quantity of products sold, average revenue – is the revenue obtained by a company from the sale of a single unit of product. It is calculated by dividing total revenues by the volume of sold products marginal revenues – the increase in total revenues, which is obtained by increasing sales by a unit of a given product or service.
Already at this stage it is worth noting that the revenue does not reflect the real financial situation of the company. Referring to the next part of the article, one can also say that the revenue is all the financial flows leading to the generation of income.
What is income?
income from business activity = income from business activity – costs incurred in order to obtain such income
Revenues are not capable of reflecting the real financial situation of an undertaking. Why? Every entrepreneur should be aware that there is nothing for free. So if you are taking action to earn money in the future, you should also be aware that you have incurred some costs in the course of this investment.
Income is defined as all income earned, remaining after deducting the costs of their acquisition, and contributions (pension, disability and sickness insurance). Income arises when the income exceeds the costs related to its achievement.
Imagine a situation where you run a production company that produces bags. In this case, the amount you get from selling your bags is only revenue. In order to calculate the income from this activity, one has to deduct the costs of their acquisition from the income. In this case, the costs may be such as electricity consumption or payment of wages to employees. Of course, you can throw a lot more money into the costs.
You can find out more about the costs in the article: What expenses can be thrown into the company’s costs?
Revenue can be considered in two ways:
gross income – amount before tax net income – amount after tax
Income tax is calculated on the basis of calculated gross income.
In conclusion, it is possible to draw conclusions from the following