Last Updated on September 13, 2023
When it comes to managing your business’s cash flow, few things are more important to understand than the difference between revenue vs. income. By understanding how to correctly identify revenue vs. income in accounting, you can streamline your business accounting and have the confidence needed to take on essential tasks like auditing your cash flow or completing a break-even analysis.
Revenue: The Top-Line
Revenue is known as the “top-line” because it is found at the top of a company’s income statement. It is the total income a company generates from its products or services before accounting for any expenses the business might have incurred.
The top line revenue statistics state how much a company sold during a particular period. However, revenue can still be useful for determining the overall health of a company by showing how well it is able to generate sales.
This is especially true when comparing revenue to past periods. If a company experiences a sharp decline in revenue from one month to the next, business leaders can use this information to determine why the drop in revenue occurred and what strategies can be used to improve results in the future.
Top-Line Revenue vs. Bottom-Line
Sometimes, you might hear people talking about top-line revenue vs. bottom-line revenue. This is actually a misnomer. “Bottom-line” does not refer to revenue at all but is instead talking about income (more on that later).
So, what is top-line revenue? It’s just another term used to describe the total revenue of a business during a particular period (be it a month, quarter, or even a full calendar year). This will appear at the very top of a business’s financial statement. Most companies will then break down this total, revealing the revenue earned from each individual source beneath the top line.
How to Calculate Annual Business Revenue
Generally speaking, revenue is calculated by adding up all the sources of revenue that a business might have. This could include the sale of products or services, subscription fees, late fees and other service charges, licensing agreements, and more.
The exact categories that go into revenue calculations can vary from business to business. For example, a hardware store that rents out equipment to customers could also add “rental income” as a source of revenue in addition to product sales, while another business in the same category might only list product sales and service charges as revenue sources.
Regardless of which categories you choose to include or exclude when calculating annual business revenue, it’s pivotal to remain consistent year after year. If the hardware store that added rental income as a source of revenue decides to leave that out of revenue for the next fiscal year, for instance, that should be explicitly noted in the relevant financial statement(s) for full transparency.
Example of Revenue
Here’s a quick example of what a business’s total revenue might look like when calculating its totals for a monthly financial statement.
Let’s say that Bob runs a business with the following revenue streams: product sales, rental income, subscriptions, affiliate marketing, and service charges. For the past month, the revenue from each category looked as follows:
• Product sales: $13,000
• Rental income: $11,200
• Subscriptions: $11,000
• Affiliate marketing: $1,500
• Service charges: $1,000
The total of all of these revenue streams is $37,700. By adding up revenue totals from all revenue sources, Bob can easily determine how much revenue his business generated in the past month.
Income: The Bottom-Line
While revenue is obviously a highly important metric, calculating your income is equally necessary, especially when setting cash flow considerations for your budget. Income, also known as the “bottom-line” or gross profit, is more often used to describe how much of a company’s earnings remain after deducting its operating expenses.
Your net income after you subtract your business’s operating expenses reveals how well your company is managing its costs—and whether you are turning a profit. It has a direct impact on your total cash flow and whether you will have enough money to cover all your business expenses.
A company that has positive net income is able to cover its expenses without taking on additional debt or needing to ask for funding assistance from other sources. While increasing revenue is certainly important as well, bottom-line income is ultimately the best indicator that a company is in good financial health.
Related: Gross Profit vs. Gross Margin
How to Calculate Business Income
To calculate business income for a certain time period, you take your total business revenue and then subtract the total expenses your business incurred during that period, for a simple formula:
Income = Revenue – Total Business Expenses
Common costs of doing business that you shouldn’t forget to leave out of your total expenses include:
- Costs of goods sold (COGS): labor and materials expenses for producing goods
- Distribution costs
- Office supplies
- Business depreciation
- Interest on business debts
The list can add up surprisingly quickly, even for a small business with seemingly little overhead. However, by properly categorizing and recording all of your business’s expenses, you can generate the most accurate expense total to subtract from your total revenue.
By categorizing your expenses, you’ll also be better able to identify areas where you might be overspending and where you can cut costs to increase your total income.
Example of Income
Let’s go back to our previous example of Bob, whose monthly revenue was $37,700. For this same month, Bob had the following business expenses:
- COGS: $5,000
- Payroll: $15,000
- Marketing: $5,000
- Rent: $3,000
- Insurance: $500
- Taxes: $3,000
- Miscellaneous: $2,000
This gives Bob total expenses of $33,500. Subtract that from his revenue total of $37,700, and Bob is left with a bottom-line income of $4,200.
Revenue vs. Income: Similarities and Differences
So, to review revenue vs. income, here’s a quick breakdown of how the two compare:
|What it measures||Total revenue from sales and all other sources||Remaining profit after subtracting total expenses from revenue|
|Measurement period||Can be monthly, quarterly, or yearly||Can be monthly, quarterly, or yearly|
|How to calculate||Add all sources of revenue (sales, subscriptions, rental income, fees, etc.) = Total Revenue||Total Revenue – Total Expenses (COGS, payroll, marketing, rent, etc.) = Income|
|Where it appears on a financial statement||At the top||At the bottom|
|Other terms used to describe it||Top line revenue||Bottom line, profit, earnings|
Net Income vs. Net Revenue
One area that can get a little confusing is the difference between net revenue and net income. Net revenue is less than total gross revenue because it subtracts adjustments like discounts, refunds, or product returns. However, net revenue does not include other operating expenses that affect a company’s profit margins.
Net income, on the other hand, measures a company’s profit after subtracting all of its expenses. Because of this, net income will never be higher than net revenue.
Revenue vs. Income Example
When looking at a company’s statement of cash flows or various financial documents, it is actually relatively easy to see the difference between revenue vs. income.
Going back to our example of Bob, he posted a monthly revenue of $37,700. After subtracting his expenses, he was left with a net income for that same period of $4,200.
These figures are readily available when major companies issue their profit and loss statements or other financial reports. For example, in April 2023, Microsoft reported that for its January-March 2023 quarter, it had $52.9 billion in revenue and a quarterly profit of $18.3 billion. Reading between the lines, this tells us that the tech giant had over $30 billion in expenses.
Successful companies tend to look for ways to improve both their top-line revenue and their bottom-line income. Companies might introduce new products or services to increase sales or use advertising to attract new customers and fuel top-line growth. They can also find ways to reduce expenses for further bottom-line growth. As a small business owner, you can take inspiration from these strategies to improve your own revenue and income.
Where to Find Revenue and Income on a Financial Statement
When looking at a business cash flow statement, you’ll find revenue and income exactly where their nicknames suggest they’d be. So, where is revenue on a financial statement? Revenue will appear on the top of a financial statement, because it shows the company’s total earnings before any deductions.
At the bottom (or “bottom-line”), you’ll find the company’s income—the total profit after subtracting all expenses. In between, you’ll typically find itemized lines for different business revenue sources and expenses.
Even when different terms are used for income—such as operating income, earnings, or profit—the meaning is the same. This total should always appear as the bottom of a financial statement.
Revenue vs. Income FAQs
Is revenue the same as net income?
No. Revenue describes the total amount of money a business earns during a particular time period. Net income describes the amount of profit the business had left over after subtracting all of its expenses for that same timeframe.
Is operating income the same as revenue?
No. Revenue describes the company’s earnings before subtracting expenses. On the other hand, the company’s operating income is how much money it has left over after subtracting its total expenses from its revenue.
What is top-line revenue?
Top-line revenue is the number that appears at the top of a financial statement. It represents a company’s total revenue from all sources, such as sales, subscriptions, service fees, and so on.
What is the difference between earnings and revenue?
Revenue reflects the total amount of money a company earns through sales and other revenue streams. Earnings describe how much money the company keeps as a profit after it has paid all of its expenses.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.