Everything You Need to Know About Revenues and General Revenues

Understanding revenue provides a solid foundation in economics. These terms form the building blocks of the vast field of finance and economics, and you cannot progress without understanding key concepts such as what revenue is, its types, its impact, and the concept of general revenues.

In this article, we present a comprehensive guide based on our accounting expertise on the definition of revenue, methods of revenue collection, and the role of electronic accounting software in managing them.

What Are Revenues?

Revenue is the total amount of money your business earns from selling products or services, and before deducting any expenses, it’s also called sales or turnover.

Revenue can be defined as a reflection of the value of products and services offered to the market based on key fundamentals, namely price, supply, and demand.

In revenue accounting, revenue is expressed as the result of multiplying the price of products or services by their quantity. According to this equation, revenues are affected by increases in both price and quantity.

This makes it essential to carefully study the competitive market and accurately understand customer and audience trends in order to make sound decisions regarding cost determination, required quantities, and expected profits.

Under IFRS 15, revenue is recognized when or as the business fulfills its performance obligation by transferring the promised goods or services to the customer.

What Are the Types of Revenues?

Understanding revenue types helps form an accurate picture of a company’s performance and identify its income sources, which ultimately supports sound financial and managerial decision-making. Revenues are divided into two main types:

1. Operating Revenues

Operating revenues come from an organization's core business activities. They include the monetary returns collected from selling products or providing the business's main services.

Operating revenues aim to cover production costs and day-to-day operating expenses and are directly linked to the company’s core income. As a result, they represent the largest share of a company’s profits.

Examples of Operating Revenues:

• Sales of products and goods.
• Income from providing services such as consulting, medical services, delivery services, and others.
• Commission and fee revenues.
• Advertising revenues.
• Revenues from long-term contracts, generated by dealing with specific clients and entering into contracts to supply products or provide services over an extended period, often exceeding one year. This type of operating revenue provides significant stability in net income and profits.

2. Non-Operating Revenues

Non-operating revenues are revenues earned by an organization from indirect business activities. This type of revenue is often non-recurring, as it is not linked to ongoing investment or financing activities and typically arises from non-core assets. Operating revenues are presented separately from non-operating revenues in the financial statements.

Examples of Non-Operating Revenues:

• Returns from investments in stocks, bonds, and other securities.
• Revenues from selling certain assets, such as real estate and equipment.
• Compensation and penalties imposed on late-paying customers.
• Interest earned on loans granted by the company to others.

How Are Revenues Calculated? Practical Examples

When Are Revenues Recognized?

Revenues are recognized either on an accrual basis, meaning they are recorded when earned regardless of when they are received, or on a matching basis, where revenues are recorded alongside the related costs.

These are five steps of revenue recognition:

1. Establish a contract with the customer: The process starts with an agreement between the business and the customer that explains what each party is expected to do. The agreement can be written, verbal, or implied.
2. Identify the performance obligations: The business then identifies what it promised to deliver under the contract, whether that means providing a service, delivering a product, or both. A contract may include more than one performance obligation.
3. Determine the transaction price: This is the amount the business expects to receive from the customer in return for the goods or services it provides.
4. Allocate the transaction price: When a contract includes more than one performance obligation, the total price is divided among the different goods or services based on their relative stand-alone selling prices.
5. Recognize revenue when the obligation is fulfilled: The business recognizes revenue when it delivers the promised product or provides the agreed service. Depending on the contract, this can happen at one specific point in time or gradually as the service is provided.

A Saudi e-commerce store generated total sales of SAR 115,000 including VAT during the month. The store owner initially recorded the full SAR 115,000 as revenue, overstating the company’s actual revenue. 

During the accounting review, we separated the sales amount from the VAT collected from customers. It became clear that part of the SAR 115,000 represented VAT collected on behalf of the relevant authority rather than revenue earned by the business.

After separating the VAT from the sales amount, the store could recognize its actual revenue accurately and avoid overstating sales.

Where Revenues Appear in Financial Statements?

Revenue appears on the income statement, also known as the statement of profit or loss; it represents the income earned from selling goods or providing services and is used to determine the company’s net income.

What Is the Definition of General Revenues?

General revenues include cash inflows or fees collected by the government and public authorities from individuals and companies. The sources of general revenues vary by the type and source of income collected, and their primary purpose is to finance public expenditures, serve society's interests, and meet basic public needs.

What Are the Sources and Types of General Revenues?

General revenues are a core component of the state’s general budget and refer to the returns the government collects from various sources to finance public expenditures. Below is an overview of the sources and types of general revenues: 

1. Revenues from State-Owned Assets

These are revenues generated from the use of assets and properties owned by the state and are divided into:

• Natural Public Assets: Mineral and marine resources, as well as other natural resources.
• Industrial Public Assets: Transportation and communication facilities, establishments that provide multiple public benefits, and cultural, artistic, recreational, and historical institutions.

2. Fee Revenues

These are revenues governments and public authorities generate by imposing fees on activities and services they provide, such as licensing and permit fees, judicial fees, and others.

3. Taxes

General revenues collected by the state from individuals and companies across different activities and income sources, including:

• Income and profit taxes.
• Property taxes.
• Customs duties.

 What Is the Difference Between Revenues and General Revenues?

The main difference between revenues and general revenues is their source. Revenues come from a company selling products and providing core business services; sales are the primary source, and the main objective is to achieve profit. 

In contrast, general revenues include cash inflows or fees that the government and public authorities collect from individuals and companies. The sources of general revenues vary depending on the type and source of income collected, and their primary purpose is to finance public expenditures, serve the interests of society, and meet basic public needs.

From this, we can conclude that the differences between revenues and general revenues can be summarized as follows:

How Are Revenues Collected?

Revenue collection, including general revenues, is a vital process that ensures the financing of activities. 

1- Direct Collection

This method includes several sub-methods for collecting revenues, as follows:

• Cash payment at the time of purchase: This collection method involves receiving cash directly from the company or the state upon delivery of the sold product or service.
   
• Collection through checks or bank transfers: This is a direct method of revenue collection through checks issued by the customer and cashed through banks and financial institutions.

Revenue collection through checks can be managed via the fund and bank account transfer service provided by the Daftra system as part of its electronic payment solutions for customers, and the variety of payment methods.

2- Indirect Collection

Indirect revenue collection consists of several methods, including:

A) Withholding at Source:

This involves deducting amounts from service providers or contractors as penalties. In this case, the penalty amount is deducted from their dues. This type of revenue collection can be activated easily and accurately through the supplier management program in the Daftra system.

Or deducting amounts from employees’ salaries for sums previously paid, such as taxes and social insurance contributions. The employee payroll management program in the Daftra system controls this revenue collection method and provides accurate, comprehensive data on all aspects of employee salaries, including additions and deductions.

B) Fees and Taxes:

Fees and taxes are among the most prominent methods of collecting general revenues, as the government collects the revenues needed to finance public expenditures by imposing taxes and fees on various services and products.

C) Investment Returns:

Investment returns are an indirect method of revenue collection. These returns come from investments in stocks, bonds, and other securities.

D) Revenues from the Use of Assets:

An institution or government can collect revenues and general revenues by selling assets and property, or by using assets for various purposes, such as leasing to earn returns.

I came across a situation at a SaaS company in Jeddah. A customer signed up for a one-year subscription for SAR 120,000 and paid the full amount upfront.

At first, the company recorded the full SAR 120,000 as revenue when it received the payment. However, when I reviewed the transaction, the service was still to be provided over the following 12 months. So the company had received the money, but it had not earned the full revenue yet.

I separated the payment from revenue recognition and recognized revenue gradually over the 12-month subscription period as the service was delivered.

How to Increase Revenue?

To increase revenue, here are strategies to use:

What Are the Differences Between Revenues and Related Concepts? 

How Does Daftra Help You Control Revenues?

Whether revenues are operating or non-operating, Daftra’s accounting software helps you generate related reports and categorizes them into subtypes under each main type. This lets you easily identify sources of increased profit and, accordingly, adjust spending ratios and their relationship to profit growth, whether directly or indirectly.

Daftra’s revenue reports aren't limited to future planning; they also help you analyze the current situation and review your business results for any past period you choose, quickly and easily, with just a few clicks on a user-friendly, flexible dashboard.

Frequently Asked Questions

What are the most important general revenues?

The most important general revenues include taxes, government fees, property-related fees, returns from government investments in other companies, and donations and grants government institutions and public authorities receive to finance specific projects.

Are revenues and sales the same?

No. Although revenues and sales are closely related in financial and accounting contexts, where sales are a primary source of revenue, revenue is a broader concept.

Revenue includes the financial amounts an entity earns from various sources, not just sales; these may include investment returns or interest on loans, among others. Sales, on the other hand, refer specifically to the financial amounts earned directly from selling products and services.

Who is a revenue accountant?

A revenue accountant monitors, records, and analyzes the revenues a company earns from activities such as sales, taxes, investment returns, asset sales, and other sources. A revenue accountant’s tasks include:

• Preparing the income statement and other financial statements to understand the organization’s performance and its ability to generate profits.
   
• Reviewing transactions, contracts, and agreements and reconciling them with recorded revenue figures.
   
• Providing financial analyses in cooperation with other departments, such as cost management, to support sound financial decisions and identify opportunities to increase revenue and profit.
   
• Complying with recognized accounting standards and controls for recording and analyzing revenues, as well as internal and external auditing.

What do revenues consist of?

Revenues come from a variety of sources that generate cash inflows for an organization or enterprise. Revenues differ from one company to another depending on the nature of its business and field of activity.

Common revenue sources include sales, investments in bonds and securities, proceeds from asset sales, interest, and government fees. 
 

When are revenues recognized?

Revenues are recognized either on an accrual basis, meaning they are recorded when earned regardless of when they are received, or on a matching basis, where revenues are recorded alongside the related costs.

Are revenues credited?

Yes. Revenues are usually recorded on the credit side of double-entry bookkeeping. When a company earns revenue, it credits the revenue account because revenue increases equity on the balance sheet.

Are revenues net profit?

No. Revenues are not net profit. Instead, net profit represents the net revenues an organization earns after deducting all expenses.

Are foreign exchange gains considered revenues?

No. Foreign exchange gains are not considered revenues. They are related to differences in exchange rates between foreign currencies and other currencies during transactions.

The difference between the original value of a currency and the realized value may result in a gain or a loss; therefore, such differences are not considered revenues but are part of other comprehensive income, which results in net profit or loss when classified and recorded according to applicable accounting standards.

When are revenues debited?

Revenues are generally not recorded as debits. However, debit entries may occur in special cases, such as correcting errors or reversing incorrect accounting entries. For example, if the company records revenue incorrectly and wants to correct the error, it may debit the revenue account to reduce it.

What is the cost of revenues?

The cost of revenues (or Cost of Goods Sold – COGS) refers to the direct costs associated with producing goods or providing services that generate revenues. These costs typically include raw materials, direct labor, and other direct manufacturing costs. Cost of revenues helps determine gross profit, the difference between revenues and cost of revenues.

What are expected revenues?

Expected revenues refer to the income a company anticipates earning in the future. These estimates are based on current contracts, purchase orders, or market and sales forecasts.

Expected revenues are an important tool for financial planning and analysis, but they are not recorded as revenues in the financial statements until they are realized in accordance with the revenue recognition principle.

Where do revenues usually appear in the income statement?

Revenues usually appear at the top of the income statement and represent the starting point for calculating profit or loss. Revenues are recorded first, followed by the deduction of costs and expenses related to generating those revenues.

The basic structure of the income statement begins with revenues, followed by the cost of goods sold (if any), and then other expenses to arrive at net profit. 
 

What are unearned revenues?

Unearned revenues, also known as deferred revenues, are amounts received by a company for services or products that have not yet been provided.

Unearned revenue is recorded as a liability in the financial statements because it represents services or products that must be delivered in the future. As the service or product is provided, the unearned revenue is transferred from liabilities to revenues in the income statement. 
 

What is meant by annual revenues?

Annual revenues are the total revenues earned by a company or an individual during a full fiscal year. They include all sources of income, such as sales of goods and services, investment income, and any other income sources.
Annual revenues provide a comprehensive picture of the financial performance of a company or individual over the year. 
 

Why are revenues credited?

Revenue is recorded as a credit because it increases the company’s equity.

What is the difference between returns and revenues?

The difference between revenues and returns is that revenues refer to the value a company earns from selling products or providing services, while sales returns refer to products that customers return to the company after a sale.

What are the types of economic revenues?

Types of economic or government revenues may include:

• Taxes such as income tax, property tax, or value-added tax.
• Revenues from fees, fines, and returns.

What are revenue journal entries?

Revenue journal entries are the process through which all transactions related to revenues and incoming income are recorded. There are two types of revenue entries:

• Accrued revenue entries, which relate to revenues earned from selling services or products but not yet received.
• Unearned revenue entries relate to amounts received for goods or services that have not yet been provided to the customer.

What are capital revenues?

Capital revenues are revenues resulting from the sale of or investment in fixed assets or non-current liabilities. 
 

How are revenues analyzed?

Revenues are analyzed through several factors, including:

• Analyzing seasonal market trends and their impact on sales and revenue performance.
• Analyzing the impact of external factors such as economic conditions and supply and demand rates on revenues.
• Analyzing customer retention rates and repeat purchasing behavior.

What is the difference between customers and accrued revenues?

The difference between customers and accrued revenues lies in the resulting impact. Customers are individuals who purchase on credit, meaning they receive products or services with deferred payment, which results in accrued revenues for the company. 
 

What is the difference between accrued revenues and accounts receivable?

The difference between accrued revenues and accounts receivable lies in invoice issuance. Accrued revenues are recognized before issuing an invoice and upon earning the revenue, whereas accounts receivable are recognized after issuing an invoice to customers.

How is revenue audited?

Revenue auditing is conducted through several steps:

• Determining the audit period.
• Collecting documents and records that evidence revenue-generating transactions, such as invoices, receipts, and other supporting documents.
• Reconciling revenues recorded in actual documents with revenues recorded in the accounting books.
• Recording accrued and unearned revenues.
• Preparing revenue adjustments to apply the accrual principle, ensure accurate financial data, and prevent manipulation.

In conclusion, revenue is one of the most essential pillars of any successful business. Understanding the financial and accounting aspects of revenue enables business owners and enterprises to invest, grow, and achieve sustainable financial stability in competitive markets.

Therefore, companies should follow successful strategies and practices to deliver real value to customers through products or services to achieve desired revenues and profits.

Equally important is the role of digital accounting software in efficiently and effectively managing revenue items and analyzing financial data digitally with minimal effort and accurate results, helping concerned parties make well-informed financial decisions.