Revenue

What it means

Revenue is an increase in economic benefit during the accounting period: sales of goods, products and services, but also interest, FX gains or the release of a provision. It is not the same as money coming in.

Revenue arises when the supply is made - goods delivered or a service rendered - regardless of when the customer pays. That is precisely why profit and cash diverge.

For a VAT payer, revenue is only the amount net of tax; output VAT is a liability to the state. The concepts do not overlap the other way either: not every item of revenue is a taxable supply for VAT - an insurance payout or compensation for damage received is revenue, yet no VAT arises on it.

How it works in practice

In the profit and loss statement revenue stands against costs, and the sales part of it makes up turnover. A breakdown by product, channel or country comes from sub-accounts.

A supply spanning the year end - a subscription, a maintenance contract, an annual retainer - is spread through accruals and deferrals into the periods it concerns.

A sole trader on single-entry books does not track revenue but receipts, meaning payments. When a client moves from a trade licence to an s. r. o. with double-entry books, we explain in advance why the new company is taxed even on an invoice the customer has not yet paid.

What to watch out for

An advance received is not revenue: until delivery it is a payable to the customer, even though an advance invoice is issued and VAT paid on it. Booking advances to revenue is among the commonest pre-closing errors.

An invoice issued in January for work done in December belongs to the old year as revenue. If it has not been issued by the time the accounts are closed and the amount is not exact, it is recorded as an accrued estimate; otherwise the profit slides into the next period, and in an audit that is understated tax for the original year.