Difference in Turnover and Income | We often come across the words Turnover or revenue whenever we talk about how big is the company? or how successful the company was? Or how big is the growth compared to previous years? What is his net worth?
The difference between Turnover and Revenue is that Turnover is related to the total of business transactions and Revenue is the income received from the sale of products or services. Turnover is a broad term used in different contexts across different disciplines. In general, it implies the business or trade carried out by the company in terms of money within a certain period.
On the other hand, the word revenue is specific, which refers to the results received by the company in a certain period. This is not the company’s profit, but the company’s revenue.
For most of the people, these words are one and the same thing, in fact, they associate them with the term ‘sales’ but let me tell you, that they are different from sales, as in, the sale of goods or services is just one stream of income. .
Now, let us go further into the topic to understand the difference between Turnover and revenue.
Definition of Turnover
Turnover is a bookkeeping concept that calculates how quickly a business performs its actions. For the most part, Turnover is used to understand how quickly a company collects amounts from accounts payable or how quickly a company sells its stock or reserves. In business capital, Turnover is well defined as the ratio of the range or billing in a given time.
Fundamental Turnover are two of the main assets held by the company are accounts payable or receivable and inventory or shares. Together from this financial record requires a large capital investment, and it is important to measure how quickly a business raises money.
Turnover Percentage calculates how quickly a company collects the amount of its receivables and inventory investments. This proportion is used by experts and important financiers to regulate if the company wants a good investment.
Type of Turnover
- Accounts Receivable Turnover: This represents the total number of voluntary customer statements at any one time. If credit transactions are sales that are not directly paid in cash, the method or formula for Turnover of accounts receivable is credit sales divided by the average or average trade receivables. The average receivable or payable is simply the average of the beginning and ending balances of the accounts receivable records for a given period.
- Inventory or Stock Turnover: This is also identified as Sales Turnover. The Inventory Turnover formula, which is defined as cost of goods sold (COGS) divided by average inventory, is similar to the accounts receivable formula. When you sell inventory or stock, stability and balance shift to the cost of sales, which is an expense account. The goal as a business owner is to maximize the inventory sold while minimizing the existing inventory.
Definition of Income
Revenue mainly refers to the money that the company earns during the ordinary course of business operations, i.e. operating income. Which means that, in the case of a for-profit company, the revenue will be the result of selling commodities to consumers or providing services and in the case of a non-profit-making company it will be in the form of donations, membership fees and subscriptions.
However, it also includes the results of non-operational activities that are infrequent or non-recurring such as sales of investments, sales of fixed assets, sales of second-hand goods, interest received, dividends received, commissions received, etc.
Revenue is also referred to as the “Topline” as it appears on the income statement as the top item. All expenses and expenses are deducted from revenue, resulting in the company’s net profit, which is called the “bottom line”. So, we can say that revenue is the income of the business before any deductions.
Here one thing should be noted that revenue is not the same as sales, because sales are only one part of the business income.
- Turnover states the total number of sales generated by a commercial company in a certain period. And income is not counted other than cash received by the business, either from its commercial operations or from non-commercial operations.
- It is not mandatory for the company to record or declare Turnover as Turnover is intended or calculated to get a better understanding of the company’s accounts so that proper work can be accomplished, and revenue is expressed in revenue or earnings accounts at the topline. It is mandatory for companies to declare income.
- Turnover can be used to calculate various types of turnover percentages such as fixed asset turnover ratio, receivable turnover ratio, and inventory turnover ratio, etc. And revenue can be used to calculate various types of revenue ratios such as operating ratio, net profit ratio, and Gross Profit ratio.
- Corporate turnover is important because in order to generate a strong profit or income, the corporation is required to know which level or level of Turnover to be successful. While the company’s revenue is an important part because it imitates the strength of the consumer base and commercial share of the market when there is a development in revenue.
- There are three types of Turnover which contain cash or amount, inventory or stock, and employment or labor, while income consists of two types which contain functional income and non-functional income.
- Turnover determines the pace of the company in key actions. This signifies the speed with which corporations collect money from accounts receivable and in selling business goods to consumers. In contrast, revenue determines the amount brought to the company, either from the sale of goods or from non-functioning activities.
Conclusion: The terms Turnover and revenue play a key role in evaluating a company’s activities, and also with the evaluation of a company, in the event of bankruptcy, transactions or sales and mergers.
