The difference between Income (Sales) and profit is immense, and should never be confused or underestimated. Income is the net sales from products or services generated by a business, while profit is the residual earnings of a business after all expenses have been charged against net sales.
The terms Income and Profit have a number of terms which are interchangeable.
Income = Revenue = GROSS sales = GROSS Income = Starting point of a Profit & Loss Report
Profit = NETT Sales = Nett Income = (Sale – Expenses) = Bottom line of a Profit & Loss Report
Income is simply the amount of sales or revenue streams of the business only.
Profit means revenue that remains after all expenses.
The Profit or Net Income of a company is the result of a number of calculations, beginning with Income and encompassing all expenses and income streams for a given period. All the money that flows in and out of a company is accounted for in this amount. This includes expenses for the manufacture of products; operating expenses; payment on debts; interest paid on loans or accrued from investments; additional income streams from subsidiary holdings or the sale of assets; depreciation of assets; and taxes.
Is Income the Same as Turnover?
Income may also be referred to as Turnover. Plus, turnover can be used to discuss the inventory turnover to calculate the amount of sales rotation of stock-on-hand that has been sold. For example, a business that has inventory turnover of four must sell its entire on-hand inventory four times per year in order to generate its annual sales volume.
Example 1) – A business earns $90,000 in sale of products for the month of March. The business has general expenses of $65,000 per month, and purchases stock for $20,000.
Thus the INCOME of the business is $90,000, but the PROFIT of the business is only $5,000
Example 2) – A business earns $40,000 in sale of services for the month of April. The business has general expenses of $30,000 per month, monthly loan repayments of $5,000, and payroll expenses of $7,000 per month.
Thus the INCOME of the business is $40,000, but the LOSS of the business is $2,000. There is no profit because the expenses are more than the income.
The bottom line is, it does not matter how high the SALES of the business are, your EXPENSES must be less than your sales to produce a PROFIT. If a business has sales of $2million, but it costs $2.1million to make these sales, the business is UNPROFITABLE = unviable. To create a profit increase sales or reduce expenses.
Remember always view your Profit & Loss Reports, and other reports, in the Accounting method your business is using – Cash or Accrual (See Difference between Cash and Accrual Accounting Sheet)