Definition Of Accounting Revenue

Before we get into understanding definition of accounting revenue in more details it is important for you to have some background reflection on it. Business is one of the oldest activities on earth and people have been doing it in various forms since many years. What is the main purpose of business? It is earning profit either by selling a product which is tangible or by providing a service which is intangible in nature. So the purpose of any business is to earn profit. Profit is a difference between revenue the business has earned during a particular period of time and expenses incurred by the business to earn that revenue.

So if there is no revenue, there is no profit. So what is the definition of accounting revenue? How can we understand this concept? This concept is not sophisticated. Revenue is gross earnings from certain business activity. It is a price charged to customers for goods sold or services provided. In the accounting books you can find other names for revenues, like sales, fees earned and other.

Definition Of Accounting Revenue In More Detail

From the business point of view revenue can be understood as a gross increase in owners’ capital resulting from the operations of a business. Gross means not decreased by the expenses incurred to earn revenue.

Usually the following business transactions cause earning of revenue and their recognition in accounting:

Sale of goods
Provision of services
Permission granted to others to use the assets of the business (leasing, renting, etc)
Selling of assets other than goods (sale of machinery)

The main features of revenue are the following:

It arises from the trading activities of a business
It creates inflow of funds to the business
It is measured in terms of money
It is always related to a particular accounting period
It is a result of a series revenue generating activities
Capital is the source of revenue

Definition of accounting revenue helps us to understand its essence, however it does not explain revenue recognition principles, which should be covered in more detail.

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