Bookkeeping Services
To understand the difference between Revenue, Cost, and Expenses, it helps to visualize the "life cycle" of a dollar in a business. Revenue is the Accounting Services in Knoxville, while Costs and Expenses are the different ways money goes out.
Think of it like a lemonade stand: Revenue is the total cash in the jar at the end of the day. Costs are what you spent on lemons and sugar. Expenses are what you paid your little brother to hold the sign or the rent you paid for the sidewalk space.
Revenue is the total amount of money a business receives from its core activities—usually selling goods or providing services—before any deductions are made.
Characteristics: It sits at the very top of the Income Statement. It is often called "Sales" or "Turnover."
Formula: Quantity Sold Sales Price = Revenue
Example: If you sell 100 books for $20 each, your revenue is $2,000.
In a business context, "Cost" (specifically Cost of Goods Sold or Cost of Sales) refers to the money spent directly to create the item or service being sold.
The Direct Link: If you don't make the product, you don't have the cost. These are variable; they go up and down based on how much you produce.
Examples: Raw materials (wood for a table), factory labor (the carpenter), and manufacturing supplies (glue/screws).
Impact: Revenue minus Cost equals your Gross Profit.
Expenses (specifically Operating Expenses) are the costs required to keep the business running that aren't tied to a specific unit of production.
The Indirect Link: You usually have to pay these even if you sell nothing today. They are the "overhead" costs of existence.
Examples: Rent for the office, marketing and ads, the CEO's salary, and the internet bill.
Impact: Gross Profit minus Expenses equals your Net Income (the "Bottom Line").
The relationship between these three terms defines the most important formula in business:
Revenue - Cost - Expenses = Net Profit
Revenue tells you if people want your product.