Accounting Basics

Understanding Different Types of Revenues

By March 19, 2015 No Comments

At first glance, the term “revenue” seems pretty straightforward. It’s inbound money, right? Well, yes… but there are actually a few different types of revenues, that depending on what sort of business you’re in, can help you get a sharper view of your financial picture.

What is Revenue?

Recalling that revenue is income your business earns from services provided or the sale of goods, it is also the top line of your profit and loss statement. (This is often called “gross revenue.”) From this number, your losses (i.e., expenses) are subtracted, giving you your profit.

Different Types of Revenue

At a high level, we’ll start by splitting revenue into “operating” and “non-operating.” Operating revenue is much like we’ve already described: income from sales, services provided, etc. It’s the money you earn from the core activities of your business. Non-operating revenue can be thought of as income on the side, perhaps passive. It’s money earned that falls outside your business’ core offerings. And this is where the different types of revenue come in to play…

Banking

Rent

Unless you’re in the business of renting property (in which case, rent income would absolutely be considered operating revenue), rent income is typically considered non-operating revenue.

Interest

If your business holds investments that earn interest, that interest earned is considered non-operating revenue. Debt owned is a good example. (Again, if your business is in the business of owning debt, then the interest you earn on that would be considered operating.)

Read up on the difference between good and bad debt.

Dividends

Another type of revenue is dividend revenue. If your business holds stock in another business that pays a dividend, that would be considered non-operating.

Royalties

Most people are familiar with this term from the entertainment business, but royalties are a real thing in the accounting universe too! Simply put, royalty revenue is earned with someone else (i.e., another business or individual) makes money off of something you produced. If you work in a space that deals with royalties, make sure what you produce is protected so that you actually get what you’re entitled to! (Pro tip: talk to a lawyer that’s familiar with your space.)

As with all things small business, types of revenue will differ from business to business. Take the time to map out your operating revenue and identify whether or not you have (or perhaps one day will have) any non-operating revenues.

Leave a Reply