Revenue vs. Income

Put this in the pet peeve rant category. I’m tired of “Revenue” being referred to as “Income.”

Yes – I know Quickbooks defaults to “Income.” I know it’s technically correct when referring to “Income accounts” in a company’s “Chart of Accounts.” But it’s confusing, and it baffles me.

I spent a few minutes tonight trying to figure out the origin source of this but got bored. I did find a fun explanation in the source of all truth (Wikipedia).

Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms.

For households and individuals, income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received.

For firms, income generally refers to net-profit: what remains of revenue after expenses have been subtracted. 

I’ve decided this is a confusion being promulgated by Quickbooks. Since many first time entrepreneurs use Quickbooks before they learn basic accounting, they end up referring to “income” (instead of revenue) and “net income” as “income minus expenses.” Factually true, but confusing, especially when “net income” is often referred to by many as simply “income,” since those same people will refer to “income” as “revenue.”

Confusing? You bet. Whenever I ask “do you mean your bottom line or your revenue” I’m often surprised by which answer I get, including “I’m not sure what you mean.”

Help stop the madness. Call the thing at the top of the P&L “Revenue,” not “Income.”

Rant off.

  • http://twitter.com/wienbar Sharon Wienbar

    One of my favorite business quotes, from a portfolio CFO talking about containing costs:”God put revenue ahead of expenses on the P&L for a reason.”

    • http://www.feld.com bfeld

      Love it. That’s priceless.

  • http://www.ticktocking.com Steve Hallock

    Don’t you think some of it is intentional ambiguity?  Sounds quite nice to quote revenue figures as income!

    • http://www.feld.com bfeld

      Well – that doesn’t work very well for very long.

      • http://www.ticktocking.com Steve Hallock

        certainly not, but lots of people will bend truth to stroke ego with very short sight

  • http://twitter.com/quikness quikness

    This is basic accounting so your supposing that it comes from Quickbooks makes sense.

    • http://www.feld.com bfeld

      Yup. I really thought it might be coming from somewhere else but I couldn’t find anything quickly on Google.

      • http://www.xklsv.com Vineeth Kariappa

        Revenue is a word used by the US GAAP. The International Accounting
        standards (IAS)/ IFRS calls Revenue as Income. The P&L statement is
        the statement of comprehensive income accord to IAS, as it is a better
        “represented” and having a common standard world wide makes it easier
        for ppl everywhere to read anyone’s statements. The US, UK, India have
        different standards, where people find it difficult to comprehend other
        countries financial statements. The IAS is trying to make it the same
        for every1. But, countries, indices n companies are not moving fast.
        (main reason being the asset value/ income falls)

        Changed around 2007, if i remember correctly. QB follows IAS. They never tried to change anything!

        http://www.iasplus.com/standar… Shows the international terms before and after the changes in 2007.

        I
        don’t think you’d find this in google, you’d have to read the 2007/ 08
        accounts books or you’d have to check with your auditor.

  • Simon Lynch

    The ambiguity of ‘income’ has bugged me for years too. Always preferred Revenues and Earnings as terms which make the difference clear

    When you have a minute, can you also do a post about the random abuses of EBITDA, EBIT and others when it comes to silly things people get up to on their forecasts for early (or earlyish) stage when these are really not useful? And also the cases when they are? Would be interested to hear your take on this. 

    • http://www.feld.com bfeld

      Happily – look for something soon and prompt me if you don’t see anything.

      • Simon Lynch

        Glad to hear it might be a useful suggestion – I re-read my comment and it looked a little ‘demanding’, when it was just meant to be a possible compliment for your really useful ongoing efforts to educate people with solid advice! For the next book ;) 

  • http://www.justanentrrepreneur.com Philip Sugar

    I think its from the business press.  When I see the NYTimes and the quote income I know that means revenue.  Total bullshit.  Even worse if revenue is something you’ve never actually taken risk on….and it really should be called bookings.

    • http://www.feld.com bfeld

      Gross revenue vs. Net revenue is another one. Bookings doesn’t actually cover this one. We are so completely focused on Net Revenue at this point and it’s remarkable to me the number of people, especially so-called sophisticated investors and entrepreneurs – who view gross revenue as more relevant.

      • http://www.justanentrrepreneur.com Philip Sugar

        You are right on all counts, I’m thinking of gross billings like advertising agencies do, because that is a similar model to many internet companies.  Net Revenue is the only thing you can apply expenses like payroll against.

  • http://twitter.com/professorvc Steve Bennet

    Even worse is when you get a P&L that includes financing as revenue…I’ve seen this from both entrepreneurs and students

  • http://www.SeanMEverett.com SeanMEverett

    You must not be an investor in groupon then ;)

  • http://www.ryanborn.net ryanborn

    QB is a likely culprit but it’s also just that most people are not up to speed on accounting in general. Revenue is a mult-syllable, confusing word to most. If you substitue it with “sales” the confusion typically subsides. Disclaimer – I’m an accountant (and entrepreneur).

  • http://www.alearningaday.com Rohan Rajiv

    Haha. Looks like you’ve been dealing with a lot of this of late..  

  • http://berislav.lopac.net Berislav Lopac

    Now imagine the confusion when English is not your first language…

  • Charlie Wood

    Revenue, income, bookings, whatever. I’ll take any of them over eyeballs any day. :-)

    -c

  • http://twitter.com/Heuristocrat Kris Tuttle

    Aha! I finally realize where this was coming from. In the past I’ve worked with some very small companies and I got very frustrated with the CFO and CEO when talking about their numbers. They were using Quickbooks and I think it gave them the wrong vocabulary to talk to institutional investors and we didn’t realize where it was coming from. It’s so basic but if you mess the revenue/income distinction up it all goes downhill from there!

  • Jim Franklin

    This confusion even has policy and political implications during the last election cycle.  When a candidate proposes increasing taxes on those with over $250k of income, thats a lot different than proposing a tax on $250k of revenue.  That distinction was lost on quite a few people who were unnecessarily alarmed.  

  • http://www.eliainsider.com Elia Freedman

    Thank you! This one drives me nuts, too. The other one that Quickbooks has made acceptable is the “Profit and Loss Statement.” it is an Income Statement. The whole point is to show you inflows and outflows, not just to give you some profit number at the bottom.

    More reasons to hate Quickbooks. I wish there was a half decent, well supported and trust worthy, reasonably priced web-based alternative.

    • http://www.feld.com bfeld

      It perplexes me that they let this propagate year after year.

      • http://www.eliainsider.com Elia Freedman

        In the late 90s I called Intuit to report a bug. I thought I was being a good citizen and wanted to help. The woman on the phone said there were no bugs in Quickbooks. That was the beginning of the end for my respect for Intuit. I hate that company like tech users in the 90s hated Microsoft.

  • http://www.xklsv.com Vineeth Kariappa

    Revenue is a word used by the US GAAP. The International Accounting standards (IAS)/ IFRS calls Revenue as Income. The P&L statement is the statement of comprehensive income accord to IAS, as it is a better “represented” and having a common standard world wide makes it easier for ppl everywhere to read anyone’s statements. The US, UK, India have different standards, where people find it difficult to comprehend other countries financial statements. The IAS is trying to make it the same for every1. But, countries, indices n companies are not moving fast. (main reason being the asset value/ income falls)

    Changed around 2007, if i remember correctly. QB follows IAS. They never tried to change anything!

    http://www.iasplus.com/standard/ias01.htm; Shows the international terms before and after the changes in 2007.

    I don’t think you’d find this in google, you’d have to read the 2007/ 08 accounts books or you’d have to check with your auditor.

  • Dan

    Unfortunately, this type of thinking carries over into the political realm.  Politicians that think of revenue and income as synonymous.  Therefore, they can justify calling any expense a tax break.  So that they have the tax base moving in their minds from a % of net income to a % of revenue.  This carries over from the personal side, where all revenue is actually treated as income and expenses of income production are rarely allowed as deductions making the income tax effectively a personal revenue tax. 

  • DaveM

    Are you suggesting the the Internal REVENUE Service get its money by taxing REVENUE instead of Income? Are are you suggesting you pay your INCOME tax on your profit (before taxes)? 

  • Brian24561

    This all seems like a game of semantics, but for all of you pissed off people I ask…are income and profit synonymous?

  • http://petegrif.tumblr.com/ Pete Griffiths

    I think this must be a part of Intuit’s process of continuous innovation as described in some detail by Eric in ‘The Lean Startup.’

  • Valpurga

    BRAVO!!!!!!  I am Assistant CFO and Controller. I have an MBA and a CVA.  The company is opening a casino/cardroom which means we must submit GAAP-compliant financial statements to the state gambling commission.

    I’m trying to train bookkeepers the difference and to create financial statements from QB. I got a lecture from a bookkeeper without a degree in accounting that I needed to learn to use a P&L and that income statements weren’t anything special. AHHHHHHHHHH!!!!!!!

    Don’t get me started on why she says CF statements are really a waste of time.

    She won’t even follow orders. Boy, she just needs 5 minutes with the FASB and I’m sure they’ll ALL change their mind and through all the SFASs out the window.

    • Valpurga

      Sorry, “Throw” out…

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