Do you remember the first time you got paid for providing value to a customer? Maybe you fixed your first windshield or sold your first signature latte from your new coffee shop downtown.
Whatever your small business provides, that feeling of getting paid for your hard work is rewarding, and rightly so.
But here’s some news for you, it’s not enough just to bring money into your business. You have to know how to categorize and understand it if you want to make good decisions to keep the cash coming.
Today we’re discussing a foundational concept in bookkeeping – Revenue.
Income vs. Revenue
You’ve probably heard the terms income and revenue thrown around when discussing business finances, but what’s the difference? Although often used interchangeably, income and revenue are slightly different in terms of accounting.
Revenue is what we typically think of as what you earn in your business. It is all the money that comes into your business through sales, payment for services, affiliate marketing, etc. Revenue is also sometimes referred to as “top line” because it is the number at the top of an income statement.
Income (Net Income) is what your business earns after operating costs. It is located at the bottom of the income statement so it is often called “the bottom line.” We’ll look at income in a future article, but in order to understand income, you must first have a good grasp on revenue.
What first comes to mink when thinking about revenue is sales – money that comes in from your clients or customers, but this is not the only type of revenue that you could have in your business. Commission, affiliate marketing, and capital gains are also considered revenue and must be recorded as such.
The process you take to record your revenue is largely dependent on how your customer pays you. If you own an online shop that sells t-shirts, you most likely accept payment and then offer your customer a sales receipt at the time of your purchase.
If you run a graphic design agency, you probably send your client an invoice telling them how much they owe and when it is due. The invoice goes out first, and the payment comes in later.
What about Sales Tax and Processing Fees?
In most cases, when you sell a tangible product, you are required by the state to collect sales tax on behalf of the government. This is money that has come into your business, but do you record it as revenue?
Recording Processing Fees
If you use a third-party app to process credit card payments, you will be charged a processing fee. Because that money is taken by the third-party app, you should record it as an expense in your books.
The Bottom Line…See what we did there :)
Your business’s revenue is it’s lifeline. It’s what keeps the lights on, so make sure that you understand this foundational concept and that you record your revenue correctly.