Understanding the difference between gross revenue and net revenue is very important for people who make business in different branches. This knowledge allows for controlling expenses and you will also know how successful is your company. People who run their firms, need to know all the costs associated with doing business (costs of purchase, employee payrolls, utility bills, office supplies, etc.).
Gross revenue – what is it?
Every company that creates its income statement, puts its gross revenue at the top of this document. It is the total amount that the company receives for selling goods or offering different services. The gross revenue calculation is very easy because you only need to add up all the amounts you earned from services or sale of products.
It is important to mention that the aforementioned sum may not represent all the incomes of a company. Some firms also invest their funds in cost-bearing accounts, stocks, bonds, etc. The income from investments is inserted separately into the income statement because people who read the statement are interested especially in money earned by the company from its operations (sales and services).
In the case of cash accounting, the revenue can be recognized after receiving the payment. In the case of accrual-basis accounting, the revenue has to be recorded when you earn it, even if you get paid much later.
Net revenue – basic information
The next field in the income statement shows a net revenue. This is the gross income with deducted expenses. This kind of income considers possible returns of defective products, etc. Thanks to this calculation of net revenue, you will receive more information about the financial situation of your company. You need to remember about all expenses that are required to run a business and generate income.
Why is this difference so much important?
Many investors are interested in gross revenue because this sum shows the ability to generate sales and growth of a company. Net revenue is especially important to business owners who know the overall financial condition and situation of a firm. Thanks to the net revenue, business owners can adjust their expenses and think of some methods of saving money.
Many institutions that offer loans, very often look at gross revenue, so they are interested in the overall potential of a business. If it tends to grow, then it will be easier to make return payments to the bank or lending company, so the overall bank score will be higher and it will be easier to get a loan and its amount will be satisfactory.
Can we find any help with creating an income statement?
Creating the income statement and performing calculations, can be a difficult and time-consuming task. You need to separate your investment income from operational income and you also need to include all expenses, costs of returns, reimbursements, etc. That is why it is good to search for a good accounting company that helps with this process. Experienced accounting firms have got a wide and current knowledge of income statement rules. Fortunately, you can find them online without trouble.