The meaning, purpose and objective of any production is to make a profit. Revenues are funds from sales of products. These funds are transferred to the organization’s account for the goods provided to consumers, work performed or services rendered. Revenue is not only the main source of revenue for the company. These funds are also used to recover costs.
Revenue is the main indicator of the economic activity of an enterprise. In each economic sector, proceeds from sales will have a more specific definition. So, for example, for an industrial enterprise, revenue is the amount of products sold, for a construction company, the amount of work that is carried out in value, and for a trade organization, turnover.
The organization’s revenue may not only be the result of core activities. The company may receive funds from non-operating operations. In particular, the proceeds may come from the rental of premises, operations with the use of securities.
Funds from sales represent income only partially. They (funds) are used by the enterprise to purchase raw materials, pay off debt, pay taxes and deduct payments to different budgets and funds. All funds that an organization receives (or expects to receive) in accordance with the execution of concluded agreements, net of tax deductions, are net revenue. Part of the money goes to pay wages. Thus, of the total amount, the necessary deductions are made first, and then the net income (net revenue) remains.
One of the most important points in the economic activity of the enterprise is the timeliness of the receipt of funds from sales. Great importance is attached to this moment in connection with the fact that it is upon receipt of the proceeds that the organization’s activity cycle ends. The receipt of funds allows the company to make up for production costs and create the conditions under which a new cycle of activity will begin. Along with this, for the enterprise means of sale are the main and regular source of income.
Timely receipt of funds ensures the financial stability of the organization, eliminates delays in payments to banks, the budget, tax authorities, funds, suppliers, as well as their own employees. In case of untimely receipt of revenue, the enterprise is not able to fulfill obligations, which can lead to fines, loss of profit, and in some cases to a halt in production.
There are two ways to determine the means of implementation.
For tax reporting, the cash or accrual method can be used.
In the first case, revenue is determined by the payment terms for the shipped products, that is, after crediting cash (to the cash desk) or non-cash (to the bank account) funds for the goods.
The accrual method determines revenue by the timing of the shipment of the goods and the presentation to the buyer of the relevant settlement documents.
As a rule, the first method is used in small enterprises. Other organizations should adhere to the accrual method, taking into account revenue after shipment of goods.
When determining funds from the sale upon completion of work, provision of services or shipment of goods, tax liabilities are formed at the same time. Their occurrence does not depend on when the company receives money from the buyer. This can create a lack of financial resources for the organization.
The revenue size is greatly influenced by the pricing process. To a large extent, the value of the goods is determined by the market, in accordance with the balance of supply and demand. The price of products manufactured by the enterprise should be formed in such a way that, after cost compensation, profit remains.