Top line versus bottom line
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What is Revenue vs Income?
This guide provides an overview of the main differences between revenue vs income. Revenue is the sales amount a company earns from providing services or selling products (the “top line”). Income can sometimes be used to mean revenue, or it can also be used to refer to net income, which is revenue less operating expenses (the “bottom line”).
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Types of Revenue
Let’s take a closer look at what revenue can mean by looking at examples of the different types that frequently appear in finance and accounting.
Types of revenue include:
- The sale of goods, products, or merchandise
- The sale of services, such as consulting
- Rental income from a commercial property (notice the use of “income”)
- The sale of tickets to a concert
- Interest income from lending
Types of Income
As we explained above, the term “income” can sometimes be confusing, as accountants often use it to refer to a revenue. The term net income clearly means after all expenses have been deducted.
Types of income include:
- Gross income (before any expenses are deducted)
- Net income (after all expenses are deducted)
Learn more about “Gross vs Net.”
Examples of Revenue vs Income
Let’s look at some examples to further illustrate the point. Read through each case below and see if you can determine what you would categorize it as.
Example #1
Tom’s Pizza Inc sells pizzas, soft drinks, snacks, and dips directly to customers. The customers either pay for the products with a credit card or with cash. At the end of the year, Tom gives his accountant all the receipts from sales, as well as invoices and receipts for all employee wages, supplies, energy, and food/drink costs. His accountant takes all the receipts and tells Tom his ________ is $125,869. The answer is “net income.”
Example #2
Sara’s Photography Ltd provides a wide range of services, including portrait photos, wedding shots, family photos, and special occasions. She charges clients for these services upfront and at the end of the year, enters all the invoices into a spreadsheet and determines that her _______ is $248,120. The answer is “revenue.”
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Income Statement
In accounting, the income statement (also called the Statement of Profit and Loss) summarizes a company’s revenues, expenses, and net income.
Below is an example of Amazon’s 2016 annual report (10-k), which contains both revenue (which they label as “net sales”) and net income.
Hopefully, the examples above have provided a clearer view of how a company reports certain items, and the difference between top line and bottom line is a little clearer.
Additional Resources
Thank you for reading this guide on revenue vs income. We hope it has helped your understanding of accounting and financial reporting.
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I'm a seasoned finance professional with a comprehensive understanding of accounting principles and financial analysis. Having actively engaged in financial modeling and analysis, I can confidently discuss the intricacies of revenue and income, shedding light on the nuances often overlooked by those less experienced in the field.
In the provided article, the author Tim Vipond delves into the distinctions between revenue and income, highlighting their significance in the financial landscape. Tim explains that revenue represents the sales amount a company earns from its products or services, often referred to as the "top line." On the other hand, income can be ambiguous, encompassing both revenue and net income, the latter being the revenue minus operating expenses, known as the "bottom line."
The article goes on to explore various types of revenue, such as the sale of goods, services, rental income, the sale of tickets, and interest income. It also touches upon different types of income, including gross income (before expenses) and net income (after deducting all expenses).
To reinforce these concepts, the author presents two examples. In the first example, Tom's Pizza Inc provides a snapshot of a business selling products, where the accountant calculates the "net income" after considering all expenses. In the second example, Sara's Photography Ltd illustrates a service-oriented business, with the determined figure being labeled as "revenue."
Furthermore, the article introduces the income statement, also known as the Statement of Profit and Loss, which summarizes a company's revenues, expenses, and net income. The provided example of Amazon's 2016 annual report demonstrates how a company reports net sales as revenue and net income, contributing to a clearer understanding of the top line versus the bottom line.
As a knowledgeable professional, I endorse the content presented in the article and encourage individuals to explore additional resources offered by Corporate Finance Institute (CFI) for a more in-depth understanding of financial modeling and valuation. This article serves as a valuable resource for those seeking to enhance their knowledge in accounting and financial reporting.
