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What are sales and revenue? Differences and calculations

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What are sales and revenueHow to distinguish revenue and sales? We know that sales revenue, sales and profits are the most accurate measures of a business’s success. This article by  Newslax will help you better understand the concept and how to calculate business revenue and sales. Let’s follow along.

Concept of sales and revenue

What is sales? What is English Sales?

Sales in English are called sale. Sales are the number of products a business or company sells in a certain period of time, be it a month, a quarter or a year. Sales volume is the total amount of multiple sales in a given period.

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Sales include both earned profits and uncollected profits. Sales can include both pre-sales and revenue, but sales are not entirely dependent on revenue.

What is revenue?

As mentioned above, we understand what sales is? What about revenue? According to the definition of the World Institute of Certified Public Accountants and the Vietnam Institute of Certified Public Accountants No. 14:

“Revenue is the total value of economic benefits that an enterprise receives from current production and business activities in a tax accounting period, contributing to the development of the enterprise’s equity.”

We can understand simply, revenue is the amount of money earned before taxes are deducted.

Examples of sales and revenue?

To better understand these two concepts, we will provide you with the following example:

Y is the owner of a bus ticket business. Y has set a business target of reaching 700 million VND by November 2022. The first thing you need to do is determine whether reaching 700 million in November is revenue or not. sales.

The November revenue target that Y set is 700 million: From November 1, 2022 to November 30, 2022, bus ticket sales must bring in 700 million. This amount includes both the current month’s amount and the amount of money collected that customers have purchased unpaid from previous months.

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If this is sales, then from November 1, 2022 – November 30, 2022, you must sell a total value of 700 million. This value is only calculated based on the number of bus tickets sold, excluding agent costs, investment costs,…

What is the difference between sales and revenue?

To distinguish between revenue and sales, we need to follow the following table to get a more accurate answer to the question of distinguishing between revenue and sales:

RevenueSales
The net income of a business after deducting expenses and taxesThe total income a company earns during a business period
Can be obtained from any type of income the business has, including interest, sales revenue or income from the sale of assetsIncludes only income from basic sales, the main capital the company uses to operate
Net profit minus all expenses for a given period, plus the company’s earnings on a date when the asset is sold or any other income generated from an assetMeasured over a specific period of time from product sales
Can come from many different businessesOften used to refer to a company’s income from a certain business activity
This is the final figure in net profit after all expenses have been deductedThis number is the different profit level when specific costs are deducted. For example, Gross Profit = Total Sales – Cost of Goods Sold 
Includes income from various non-recurring sources such as asset salesIncludes only recurring income from sales
The endpoint is determined in the profit and loss statement after deductions are made from the total revenueThe starting point for all account reporting and analysis. Everything done for the company starts with the total sales generated
Depends on revenue (sometimes from other sources)Based solely on product sales
May include other sources of incomeAlways a source of sales for the business’s products

What is the harm of businesses not distinguishing between sales and revenue?

Confusion between the concepts of revenue or sales in financial statements can create unforeseen risks for the company, for example:

– Due to high sales, companies mistakenly believe that business activities have generated high profits and forget about the costs involved. From there, plan your business operations without calculating the investment costs involved.

– Underestimating the role of revenue accounting in business activities.

– Cash flow (the movement of money into and out of the business over a specific period of time) cannot be calculated.

– Forget the concept of corporate liquidity.

What is the importance of sales?

Below are some of the meanings of sales for companies and businesses that Tanca wants to share with readers:

Sales are an expression of the results of a business or company. Through sales and sales accounting, companies can evaluate the success of implementing business plans.

Sales will prove the correctness and reasonableness of building business and enterprise development strategies to continuously exploit strengths and avoid weaknesses.

High sales also become an important motivation to increase employee work enthusiasm. This creates solid financial potential for businesses and companies.

How to increase sales, revenue and profits for businesses

In order to increase sales and profits in your company’s business, you should definitely not ignore the following tips:

Use discounts and rebates at the right time

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One of the ways to improve business efficiency is to use regular discount policies. This increases the purchasing behavior of new customers.

However, frequent discounts should not be abused so as not to annoy customers and make them doubt the quality of products/services on the market.

Organize minigames and games regularly

These are considered effective marketing strategies to increase the number of customers through prize-winning games. From there, promote customers’ shopping behavior.

Offer exciting free services

In addition to sales, you can take advantage of ancillary services such as free shipping, free products, gift certificates for your next purchase,… but don’t forget that these services should come with terms and conditions. to sue.

For example: buy more than 500,000 products, get free shipping, etc. This index will encourage customers to buy more or continue to buy next time.

Create scarcity

This is a measure to target customers’ fear of missing out. Let customers know that the product/service is only available at certain times and in certain quantities. This will create pressure and motivation to stimulate purchasing decisions.

The most common formulas for calculating revenue and sales

Sales = Selling price x Services recorded sold, number of products

Sales = Selling price x Recorded service sold and money received, number of products

Total revenue = Revenue from other business activities + Sales volume

Net revenue = Total revenue – (deductions + taxes)

Net revenue = Total revenue – (deductions + taxes  + other expenses)

If the difference between revenue and expenses is a positive number, the business will be profitable. Hopefully, this article will help you thoroughly understand  sales and revenue and then apply these two concepts correctly to your business. To read more good articles, please visit  Newslax often.

Link: https://newslax.com/

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Danh mục: Business

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