Examples of Revenue — A First Look
Think about the last time you bought a chocolate. The shopkeeper gave you the chocolate, you paid ₹10. For the shopkeeper, that ₹10 is revenue — the money earned from selling goods. Now think about a tutor who teaches you maths. When you pay the tutor ₹500 at the end of the month, that ₹500 is also revenue — but this time from providing a service.
That's the everyday intuition: revenue is the money a business earns from its main activities. But in Accountancy, we need to be precise.
What Exactly Is Revenue?
Revenue is the gross inflow of economic benefits (cash, receivables, or other assets) arising from the ordinary activities of a business. Ordinary activities are what the business is set up to do — selling goods for a trading firm, providing services for a service firm, or earning interest for a bank.
Revenue is not the same as profit. Profit = Revenue − Expenses. Revenue is the top line; profit is what remains after costs.
Why Does Revenue Matter?
Revenue is the lifeblood of any business. Without it, a business cannot survive. In accounting, revenue determines:
- How much tax the business pays
- Whether the business is growing or shrinking
- The amount of profit or loss reported in the Income Statement
For a Class 12 student, understanding revenue is the foundation for preparing the Trading and Profit & Loss Account — the statement that shows business performance.
Common Examples of Revenue
Here are the most important examples you'll encounter:
| Type of Business | Example of Revenue | Description |
|---|
| Trading firm | Sale of goods | Selling inventory at a price higher than cost |
| Service firm | Fees received | Income from providing services (e.g., legal fees, tuition fees) |
| Manufacturing firm | Sale of finished goods | Revenue from selling products made by the business |
| Bank | Interest income | Interest earned on loans given to customers |
| Any business | Commission earned | Income earned for facilitating a transaction between two parties |
| Any business | Discount received | (This is actually not revenue — it reduces cost, but many students confuse it) |
Discount received is NOT revenue. It is a reduction in the cost of purchases. Revenue always involves earning from outside parties, not saving on what you buy.
Accounting Treatment of Revenue
When revenue is earned, two accounts are affected:
- Debit: Cash/Bank A/c (if received immediately) or Debtors A/c (if credit sale)
- Credit: Revenue account (e.g., Sales A/c, Fees Received A/c, Interest Income A/c)
Example 1: Cash Sale of Goods
A trader sells goods worth ₹20,000 for cash.
| Account | Debit (₹) | Credit (₹) |
|---|
| Cash A/c | 20,000 | |
| To Sales A/c | | 20,000 |
Explanation: Cash comes in (debit the asset), and revenue is earned (credit the income account).
Example 2: Credit Sale of Services
A consultant provides services worth ₹15,000 on credit.
| Account | Debit (₹) | Credit (₹) |
|---|
| Debtors A/c | 15,000 | |
| To Fees Received A/c | | 15,000 |
Explanation: The right to receive money (debtor) is created, and revenue is recognised even though cash hasn't arrived yet.
Example 3: Interest Earned by a Bank
A bank earns ₹50,000 interest on loans.
| Account | Debit (₹) | Credit (₹) |
|---|
| Cash/Bank A/c | 50,000 | |
| To Interest Income A/c | | 50,000 |
Revenue in the Trading and Profit & Loss Account
Revenue appears on the credit side of the Trading and Profit & Loss Account. Here's a simplified format:
Trading and Profit & Loss Account for the year ended 31st March 2024
| Particulars | ₹ | Particulars | ₹ |
|---|
| To Cost of Goods Sold | 1,00,000 | By Sales | 2,00,000 |
| To Gross Profit c/d | 1,00,000 | | |
| Total | 2,00,000 | Total | 2,00,000 |
| To Expenses (Rent, Salary, etc.) | 60,000 | By Gross Profit b/d | 1,00,000 |
| | By Commission Received | 10,000 |
| To Net Profit | 50,000 | | |
| Total | 1,10,000 | Total | 1,10,000 |
Sales, Commission Received, Interest Income — all these are revenue items and appear on the credit side of the Profit & Loss Account. They increase profit.
A Common Confusion: Revenue vs. Capital Receipts
Revenue is not the same as money coming into the business from any source. If the owner brings in additional capital of ₹5,00,000, that is not revenue — it is a capital receipt. Revenue comes only from operating activities.
| Receipt | Revenue? | Why? |
|---|
| Sale of goods | Yes | Main business activity |
| Sale of old machinery | No | One-time, not ordinary activity |
| Bank loan received | No | Borrowing, not earning |
| Rent received from tenant | Yes (if business is renting property) | Ordinary activity |
The Bottom Line
Revenue is the income a business earns from its core operations. It is credited to the relevant income account and debited to cash or debtors. It appears on the credit side of the Profit & Loss Account and is the starting point for calculating profit.
Remember: Revenue ≠ Profit. Revenue is what you earn; profit is what you keep after paying all costs.