⁣Revenue



Definition: The
income a business earns from its operations, such as selling goods or
services.

Purpose:
Represents money coming into the business.

Impact: Adds to
the company's total earnings, reflected on the income statement.


Examples:



Sales of
products or services.



A bakery
earning $500 from selling cakes.


Interest
income.



A company
earning $100 in interest from a savings account.


Rental
income.



A
business renting out office space and earning $1,000 monthly.









Expenses



Definition: The
costs a business incurs to generate revenue or operate effectively.

Purpose:
Represents money going out of the business.

Impact: Reduces
the company’s profit, also shown on the income statement.


Examples:



Cost of
goods sold (COGS).



The
bakery spending $200 on flour and sugar.


Operating
expenses.



Paying
$300 in rent for the bakery space.


Salaries.



Paying
$1,000 to employees.









Key Difference: Direction of Money Flow



Revenue: Money earned
(inflow) by the business.

Expenses: Money spent
(outflow) by the business.








Formula Connecting Revenue and Expenses:

Profit (or Net Income) = Revenue - Expenses



If revenue
> expenses → Profit.

If revenue
< expenses → Loss.








Analogy:

Imagine a lemonade stand:



Revenue: The $50
you make from selling lemonade.

Expenses: The $20
you spend on lemons, sugar, and cups.


Your profit would be $50 (revenue) - $20 (expenses) = $30.

⁣Cash



Definition: The
actual money a business has on hand or in its bank accounts.

Purpose:
Represents the liquidity available to the business for immediate use.

Focus: Measures
cash flow (money coming in and going out).

Key
Document: Recorded in the cash flow statement.


Examples:



Receiving
$5,000 from customers as payment for sales.

Paying
$1,000 in rent or salaries.

A loan of
$10,000 from the bank (increases cash but is not profit).








Profit



Definition: The
surplus remaining after all expenses are deducted from revenue.

Purpose:
Indicates how much the business earned over a period, not how much
money it physically has.

Focus: Measures
profitability (whether the business is making or losing money).

Key
Document: Recorded in the income statement.


Examples:



Revenue
from sales: $10,000

Expenses:
$7,000



Profit =
$10,000 - $7,000 = $3,000 (even if no cash was collected).









Key Differences





Aspect



Cash



Profit





What it shows



Money
available now



Earnings
after expenses





Timing



Immediate or
short-term



Over a
specific period





Document



Cash flow
statement



Income
statement





Loan impact



Adds cash,
but not profit



Not part of
profit





Credit sales



No immediate
cash inflow



Counted as
revenue and affects profit










Example to Illustrate the Difference

Imagine a business:



It sells
goods worth $10,000 on credit (customers promise to pay later).



Profit: $10,000
- $7,000 (expenses) = $3,000 profit.

Cash: $0,
because the money hasn’t been collected yet.


It takes a
loan of $5,000.



Cash: +$5,000
available.

Profit:
Unchanged because loans aren’t revenue.









Analogy

Think of cash as the money in your wallet, available for
immediate spending.

Think of profit as the money you earned after expenses, even if part of
it is still owed to you.

A business can have cash but no profit (e.g., from a loan) or profit
but no cash (e.g., from credit sales).

⁣Capital Expenditure (CapEx)
Definition: Money spent to acquire, improve, or maintain a long-term ****et that will provide benefits for multiple years.
Purpose: For the future – it helps in generating income or efficiency over the long term.
Impact: It adds value to the ****et and is shown on the balance sheet as an ****et.
Examples:
Buying a machine for a factory.
The machine will be used for years to produce goods.
Building a new office.
It provides a workspace for the company for many years.
Upgrading software to improve efficiency for the next five years.
Revenue Expenditure (RevEx)
Definition: Money spent on day-to-day operational expenses or maintaining an existing ****et.
Purpose: For the present – it helps in running the business smoothly in the short term.
Impact: It is a regular expense and is shown on the income statement as an expense.
Examples:
Paying salaries to employees.
It’s needed to keep the business running daily.
Repairing a machine that broke down.
This brings the machine back to working condition but doesn’t improve its value.
Electricity bills for the office.
It's an operational cost required monthly.
Key Difference: Duration of Benefit
Capital Expenditure: Benefits the business over a long period.
Revenue Expenditure: Benefits the business in the short term, usually within a year.
Analogy:
Think of CapEx as buying a new smartphone, which you’ll use for years, while RevEx is like paying for the monthly internet bill to use the phone now.