Originally published Mar 19, 2015 8:00:00 AM, updated June 17 2021 At first glance, the term ‘revenue’ seems pretty straightforward. It’s inbound money, right? Well, yes… but there are actually a few different revenue types, that depending on what sort of business you’re in, can help you get a sharper view of your financial picture. Before we jump right in, let’s breakdown this not-so-simple definition. What is Revenue? Recalling that revenue is income your business earns from services provided or the sale of goods, it is also the top line of your Profit and Loss statement—also known as your P&L. (This is often called “gross revenue.”) From this number, your losses (i.e. expenses) are subtracted, giving you your profit. Overview: The Different Revenue Types At a high level, we’ll start by splitting revenue into two revenue types: Operating. Operating revenue is much like we’ve already described: income from sales, services provided, etc. It’s the money you earn from the core activities of your business. Non-operating. Non-operating revenue is income on the side, perhaps passive. It’s money that you earn that falls outside your business’ core offerings. When you earn revenue, the first thing you should do is to properly record it in your accounting books. Historically, this would have been a pen and paper task. But increasingly, accounting software automates your record-keeping (and reconciliations), helping small businesses like you save time! Now, here’s where the different types of revenue come into play: Non-Operating Revenue Rent Unless you’re in the business of renting property (in which case, rent income would absolutely be considered operating revenue), rent income typically falls under the non-operating revenue category. Interest If your business holds investments that earn interest, that interest earned is considered non-operating revenue. Debt owned is a good example. (Again, if your business is in the business of owning debt, then the interest you earn on that would be considered operating.) Read up on the difference between good and bad debt. Dividends Another type of revenue is dividend revenue. If your business holds stock in another business that pays a dividend, that would be considered non-operating. Royalties Most people are familiar with this term from the entertainment business, but royalties are a real thing in the accounting universe too! Simply put, royalty revenue is earned with someone else (i.e., another business or individual) makes money off of something you produced. If you work in a space that deals with royalties, make sure what you produce is protected so that you actually get what you’re entitled to! (Pro tip: talk to a lawyer that’s familiar with your space.) As with all things small business, revenue types will differ from business to business. Take the time to map out your operating revenue and identify whether or not you have (or perhaps one day will have) any non-operating revenues. Looking to streamline how you approach record keeping of your different revenue types? TrulySmall Accounting’s double entry accounting software lets you simplify (or customize) your chart of accounts, including types of revenue, directly in our software. It’s simple, user-friendly and oh-so-quick! Try it for free today.
