Revenue generally is the money earned by a company through its daily operations, such as the sale of goods, services or rents collected. Deferred revenue is money received for goods or services not yet delivered. The difference between revenue on an income statement and deferred revenue on a cash flow statement is their effect on the bottom line of a company's financial position, or its net income.
An income statement, also called a profit and loss statement, presents a synopsis of a company's profit or loss during a specific period of time, typically every three months (quarterly) or once a year (annually). Revenues and expenses can easily be tracked using an income statement, giving you an overall picture of your business's operating performance over a given period of time. Unexpected expenses or large increases in cost of goods sold or product returns can be highlighted. Income statements are one of the essential items used by lenders when deciding whether to extend credit for your business growth. Your accountant will appreciate a well-formatted income statement when determining your tax liability for the year.
Cash Flow Statement
A cash flow statement is generally a record of a company's in-flows and out-flows of money. Your company's cash flow statement can be a strong indicator of your business' financial health, as a company may show profits on an income statement, and yet it may not have enough cash to sustain daily operations. Cash receipts and payments on this financial statement get classified according to their purpose-financing, investing or operations activities.
Total revenue is usually found on the first line of an income statement. Revenue on an income statement is a reflection of the total sales or total revenue generated by your business, during a specified time period. The amount of revenue recorded on this line of the income statement has nothing to do with the profit of your business. It is simply a record of total income generated. For example, if you own a shoe manufacturing company, and you sold 5,000 pairs of boots at $75 each to retail companies for the time period covered by the income statement, you would record total revenue of $375,000 for that period. Since there are many other items that go into an income statement, such as cost of goods sold, operating expenses, payroll, advertising expenses, utilities and depreciation, revenue on an income statement is just the tip of the iceberg for calculating your company's net income.
With cash-basis accounting, revenue is only recognized when cash is received, and expenses are only recognized when cash is paid. Cash-basis accounting does not take into account money received for products or services yet to be rendered or deferred revenue. According to GAAP (generally accepted accounting principles), the majority of companies should use accrual-basis accounting, which requires revenues to be recorded when earned and expenses recorded when incurred. The difference between revenue on an income statement and deferred revenue on a cash-flow statement is that the deferred revenue is actually seen as a liability (debt) on your company's balance sheet (statement of income and liabilities) until the product is delivered or service is provided. Only then is it recognized as revenue for income statement purposes.
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