How do we determine how successful a business is, or how much the company has developed over the years? When we are finding the answer to these questions, we will usually see the terms revenue and turnover. For those who are not familiar with accounting (Also see The Difference between Financial Accounting and Managerial Accounting) or finance, understanding these terms can be difficult, or they may misunderstand them. If you are a business owner, you must know the essential terms so that you know the financial health of your business. This enables you to make any necessary adjustments in your company for its growth and development in the future.
Without further delay, let us move on to the topic – the differences between revenue and turnover.
If you look at the profit and loss statement of your company, you will see revenue as the top line item. Your in-house accountant or the accountants from an accounting firm in Johor Bahru will include the money that your company has earned by carrying out the business operation as your revenue. This means that if you are running a for-profit organisation, the earnings that you have generated from the sale of goods or the services provided will be your revenue. If you are operating a non-profit organisation, your revenue (Also see An Overview of Revenue Expenditure) would be the donations, subscriptions, membership fees and others.
Revenue also includes the income generated from non-operating activities like sale of fixed assets, investments or scrap material, the commission received, dividend received, and interests received. It is the amount earned by a company prior to any deductions. Note that revenue does not equal to the sales of business since the sales only make up a portion of the revenue of a business.
On the other hand, turnover illustrates the trading and business that a company has done in terms of money within a particular period. From the accounting perspective, turnover is the number of times the assets circulate in an accounting period; that is, the speed or frequency the company converted its assets into revenue (Also see Are Sales and Revenue the Same?) through its operations. Hence, turnover determines the effectiveness and efficiency of an entity in organising its resources.
While revenue reflects the profitability of a business, turnover shows its efficiency. Revenue tells the business owner about the amount of money that the company has earned from the sale of goods or services or other resources. As against, turnover is an indicator of the speed the company receives payment from its debtors and sells its inventories. The ratios related to both of them are different too. When measuring revenue, we will often use the gross profit ratio, net profit ratio and so on. On the other hand, the asset turnover ratio and inventory turnover ratio are two examples of the ratios that are commonly used for determining turnover.