Revenue vs Expenditure

⁣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.