What is the difference between revenue, income, profit, gain and return?

Every student who starts accounting and get an idea of these terms, the instinct of differentiating kicks in and he/she starts looking for the differences among these terms. Though there are sometimes minor and sometimes major differences among these terms but these days, with an exception of few, these terms are used interchangeably. For example, gain or income considered almost the same, return and gain are two different terms but usually used to mean the same. Therefore, I suggest that students should not be too strict about these terms and their meanings.

Revenue is the amount received by the business from selling main goods or services to its customers during the period. Revenue is the resultant of such activities which actually defines the reason of existence of business. For example, a car dealer’s real business is selling cars. Whatever amount he will receive from the customers on selling cars will be his revenue.

Income is term which is loosely used to mean the total earnings of the business. These earnings can be from the main activities of the business or any other activity which are not regularly undertaken by the business or such earnings are not generated as a result of activities that business perform as its real business. For example, same car dealer as discussed above has a real business of selling cars, his normal stream of earnings is from selling cars. But if he once in a while lend cars on rent then this is in addition to its regular business. And the earnings from car sales and car rentals is Income. But sometime income is also used to mean the amounts earned from such activities which are not main activities. In that case, car sales will be referred as revenue and car rentals will be termed as income.

Profit is what business is left with after deducting such expenses from revenue which made the receipt of revenue possible. As we have discussed above that there are two streams of earnings direct (earnings from main activities) and indirect (earnings from other activities) therefore, we calculate profits at two levels i.e. gross profit and net profit.
Gross profit is the amount of revenue from which trading expenses has been deducted i.e. expenses related to main activities of the business.
Net profit is the amount of revenue that includes incomes from other activities as well and all such expenses has been deducted which were incurred towards main activities as well as other activities.

Gain is what business earns on selling such assets which is not an inventory of the business. Simply put, this sales activity is not the actual trading of the business and is not among those goods that business sell on regular basis. Some of you might be asking a question that what is the difference between gain and income then? Well the term “gain” is used to represent such earnings which are definitely from such activities which are other than main operations but with an additional condition i.e. it is what we earn on selling business asset which is usually fixed asset of the business. Where as income is not just gain from sale of asset. Income includes gain and other earnings like dividends received, interest income etc.

Return is anything what business enjoys above principal amount of investment. Return is received in many different forms like interest, dividend etc but is not limited only to these two forms. For example, business holds foreign currency savings account, then return includes the interest received and the benefit from the fluctuation of foreign currency rates.

2 COMMENTS

  1. what the difference between income, revenue, profit, gain plz

  2. Hello! Excellent article. But, may be gain from exchange rate fluctuations or increase of an asset’s carrying value or decrease of a liability’s carrying value may also described as gain!

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