As a business owner, you must know that there is a difference between revenue and profit. It’s also important that you understand that difference. In this blog, we’ll explore these two topics.

Revenue is the income generated by the sale of goods/services related to the primary operations of a business.
Profit, typically referred to as the “bottom line” or “net profit” is the income remaining after deducting expenses, operating costs, debts, and additional income streams.

Revenue Basics

Often, business revenue is referred to as the “top line” because it goes at the top of your income statement. This is the income generated by the company before expenses are subtracted.

For example, the money a shoe store makes from selling shoes before deducting expenses is business revenue. If the company has income from a subsidiary company or investments, that is not business revenue because it does not come from the shoe sales. Additional streams of income and various expenses must be considered separately.

Profit Basics

On the income statement, profit is listed as net income. However, most people refer to it as the “bottom line”. There are several variations of profit on the income statement that are typically used to analyze how a company is performing.

That being said, there are several other profit margins between the top line and the bottom line. For example, “profit” may be referred to in terms of “gross profit” and “operating profit”. These are just a couple of the steps on the journey to net profit.

Gross profit is defined as revenue minus the cost of goods sold, or COGS. These are direct costs related to the production of the goods sold in a business. This includes the cost of materials and the labor costs related to the production of the products.

Operating profit is defined as gross profit minus fixed and variable expenses related to the operation of the business such as payroll, utilities, and rent.

What is the Difference?

Most of the time, when people refer to a company’s profit, they are referring to net income- not gross profit or operating profit. The net income is what’s left after expenses. Also, it’s important to note that even if a company is generating business revenue, it’s possible to have a net loss at the same time.

Things to Consider

Accrued revenue is another type of revenue you need to understand as a business owner- it is revenue earned by the business for the delivery of goods/services that have not been paid for by the customer. This is also known as unrealized revenue.

For example, let’s say you sell something for $5 each on net-30 terms to your customers and you sell 10 of those in August. However, the customers don’t have to pay until September. That means this $50 profit is listed as accrued revenue until you receive payment from your customers.

From an accounting perspective, your business would recognize this $50 on your income statement and $50 in accrued revenue on the balance sheet. Once you collect that $50, the cash on your income statement increases, and the accrued revenue decreases but the $50 on the income statement remains.

The next type of business revenue to consider is unearned revenue. This is not the same as accrued revenue. It’s the opposite.

Unearned revenue is money that is prepaid by your customers for goods/services that have not been delivered. If you require prepayment for your products, you would recognize that as unearned and it would not be listed as revenue on the income statement until the goods/services are delivered.

Is it possible for profit to be higher than revenue?

No, profit is not higher than revenue. Revenue is at the top of the income statement- the “top line”. Profit is at the bottom of the statement- the “bottom line”. Profit is what you have left after expenses and other deductions have been subtracted out of revenue.

Are our revenue and sales the same thing?

Often, business revenue and sales are used interchangeably. However, revenue is income generated before expenses are deducted. Sales are what your business earns from selling goods/services to customers.

Which one is more important: profit or revenue?

Both business revenue and sales are important for a business. However, profit gives an accurate picture of the financial position of your business. This is because your liabilities and other expenses are already accounted for.


Both business revenue and profit are important financial figures that appear on your income statement. Revenue is your top line and profit is your bottom line. If you need help with determining your business revenue and profit, contact Sterling Capital Consulting to learn more.