What Is the Difference Between Revenue and Sales?

The investment terms "income" and "sales" are often used interchangeably, although there are important differences between them.

"Sales" refers to the amount of money that a business generates over a period of time by providing its products or services to customers.

“Income” refers to the total income a business earns during a specified period of time. Revenue includes total sales, but can also include revenue generated through activities other than sales, such as investments, asset sales, and licenses.

Understand how revenue and sales differ

Companies issue income statements that summarize the income they earned in a specific period of time, such as a quarter or a year. An income statement lists both total sales for that period, also known as gross sales, and gross income.

Income is usually higher than sales if the business has other sources of income. It can equalize sales if a business has no other source of income, and it can be less than sales if a significant amount of discounts, returns, and refunds are included.

Electric car maker Tesla's first quarter 2021 report provides an example of how gross revenue includes more than total sales of the company's products or services.

Tesla reported net income of $ 438 million for the quarter and $ 10.4 billion in revenue. Two major non-sales factors that boosted the company's revenue were $ 518 million in revenue from the sale of emissions credits to other automakers and the sale of Bitcoin, which added $ 101 million to its gross revenue.

The difference between revenue and sales

Sales revenue

Definition: The total revenue that a business earns over a specified period of time.

How are calculate? Gross sales plus all other income (investments, asset sales, royalties, interest, etc.)

What this reflects the ability of a business to generate money by allocating its resources to maximize profits.

Gross sales

The amount of money that a business generates over a period of time by providing its products or services to customers

Multiply the total of goods or services sold by the unit price. Gross sales are all sales recorded within a time period without deductions. Net sales are gross sales minus discounts, returns, and rebates.

Gross sales are total sales before taking into account three factors: discounts, returns, and refunds. Licenses are any money that is returned to a customer for any reason after a sale.

The ability of a business to sell its goods and services for profit.

The bottom line

Whether you are considering a company's income and sales for investment purposes or to evaluate business strategy, it is important to understand that these two terms are not interchangeable.

Confusing sales with income can miss out on important sources of income or important deductions due to discounts or merchandise returns. It is also important to understand that some sources of income may be one-time events that should not be factored into long-term performance expectations.

We hope you enjoy watching this video about Difference Between Revenue and Sales?

Source: WallStreetMojo

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