Question

Different types of revenue and how are they calculated?

Answer 1

Revenue is the value of all sales of goods and services recognized by a company in a period. Revenue (also referred to as Sales or Income) forms the beginning of a company’s Income Statement and is often considered the “Top Line” of a business. Expenses are deducted from a company’s revenue to arrive at its Profit or Net Income.

According to the revenue recognition principle in accounting, revenue is recorded when the benefits and risks of ownership have transferred from seller to buyer, or when the delivery of services has been completed.

Notice that this definition doesn’t include anything about payment for goods/services actually being received. This is because companies often sell their products on credit to customers, meaning that they won’t receive payment until later.

When goods or services are sold on credit, they are recorded as revenue, but since cash payment is not received yet, the value is also recorded on the balance sheet as accounts receivable.

When cash payment is finally received later, there is no additional income recorded, but the cash balance goes up, and accounts receivable goes down.

The revenue formula may be simple or complicated, depending on the business. For product sales, it is calculated by taking the average price at which goods are sold and multiplying it by the total number of products sold. For service companies, it is calculated as the value of all service contracts, or by the number of customers multiplied by the average price of services.

Revenue = No. of Units Sold x Average Price

or

Revenue = No. of Customers x Average Price of Services

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Answer 2

Operating Revenue and Non-Operating Revenue are the types of revenues.

Formula to calculate revenue:

Revenue= Price of goods or services × Number of units sold

What is Operating Revenue?

• The revenue which is operated inside the business activities is called Operating Revenue
• It is calculated every year

What is Non-Operating Revenue?

• The revenue which is calculated from is called non-operating revenue
• It also includes gifts and donations