Difference Between Revenue and Gain
Revenue is the income which is the company generates from normal business activities. For the trading company, revenue is the amount receive from selling the goods to customers. Selling of service is the revenue for the service providers. Revenue includes both operating income and non-operating income.
Revenue and sale are the two words which use interchangeably. Revenue generally refers to the total amount of money that a company brings in from its business activities. This can include income from sales, interest, or other sources. It is the top line in the income statement which is deducted by cost and expenses to get the net profit. The net profit is what is left after all the expenses have been paid. The bottom line of the income statement is the net profit or net loss, it depends on the company’s performance.
Revenue is not related to the money collected or cash inflow into the company. The company record revenue when its goods are delivered or services are provided. It also does not depend on the invoice. We can record accrued revenue before the invoices are issued. On the other hand, the company may issue invoices but not record any revenue. For example, a company issue an invoice for a customer’s deposit which is recorded as a liability until goods or service is delivered.
Revenue Formula
| Revenue = Selling price per unit x Number of units |
Gain
Gain refers to the profit company receives from the increase of assets value which is outside the normal business activities. It refers to asset market prices that increase higher than company book value. For example, the market value of company investment (shares & bond) increases, so it will generate investment gain for the company.
This can be accomplished through a variety of means, such as investing in assets that increase in value over time or selling assets for more than their original purchase price. Another way to earn a profit from gain is to simply hold on to an asset and expect it to increase in price over time.
Opposite to gain, these assets’ value can decrease and the holders will make a loss. Such a kind of loss will contrast with gain, we can say it is a negative gain. It happens when the company’s assets decrease the value. The bonds or stock, that company has invested, in decrease their market value. It will reduce the company’s profit.
Gain Formula
| Gain = Asset Market Value – Asset Book Value |
Gain Example
Company ABC has purchased 100,000 shares of one company at $ 10 per share. On Jan 202X, the share price increase to $ 12 per share. On Mar 202X, ABC decides to sell all the shares at 15$ per share. Please calculate gain at each specific date.
On Jan 202X: As the company has not yet sold the investment, so the difference is just unrealized gain.
Unrealized gain = 100,000 shares x ($ 12- $ 10) = $ 200,000
| Accounts | Debit | Credit |
|---|---|---|
| Financial Assets | 200,000 | |
| Unrealized Gain | 200,000 |
On Mar 202X: The company sell all shares, so they can record the realized gain
Realized Gain = 100,000 shares x ($15 – $ 10) = $ 500,000
| Accounts | Debit | Credit |
|---|---|---|
| Cash | 1,500,000 | |
| Financial Assets | 1,200,000 | |
| Realized Gain | 500,000 | |
| Unrealized Gain | 200,000 |
We have to record the final realized gain which arises from the difference between purchased price and selling price and net it with any previously unrealized gain.
Type of Gain
- Unrealized Gain: is the gain the company receives due to the fluctuation of market value. The accountant needs to record this gain so the value of the assets will reflect with market value, however, it is not the realized gain as the company still hold the assets, and its value can change at any moment.
- Realized Gain: is the gain company receives after selling its assets. It is the difference between the selling price and purchase price. The company can realize this gain as they have sold assets, any change in assets value has no effect on the company.
