One of the most important foundations of accounting is that there be specialists with sufficient experience in calculating the organization’s general revenues and expenses, given the direct impact of these items on the organization’s condition, the extent of its success, and its ability to continue in the market. Institutions spend their money in multiple channels to continue production or provide services while waiting for revenues in the end to be able to develop production and keep pace with the needs of their customers. How does this money flow, and why does the Qoyod accounting program need to calculate, record, track, and analyze it annually? Could higher general revenues and expenses pose a risk to the company? This is the conclusion that we draw from our article.
The concept of general revenues and expenses
General revenue, or gross sales, is a term that describes the total income that an organization receives. It may come from a single source or multiple sources and be later reused as expenditures on the company’s investments and the operation of its ongoing projects. People sometimes refer to the organization’s total sales and income as the “top line” because it appears in the first line of their official income statement.
General expenses are the financial amounts paid by the institution to finance its projects, prepare infrastructure, or use other spending channels to achieve its ultimate goal. They are also known as expenses or costs and include everything paid from the company’s money to provide the goods or products that its customers need.
The difference between general revenues and expenses (costs)
The difference between general revenues and expenses is as follows:
- Revenues are money the organization receives, whether from one source or more than one source. At the same time, expenses are money that the organization pays to produce products or services for customers to achieve net income and profits from that process.
- We cannot worry about increasing the company’s revenues because if they are not an indicator of increased profit, they will not be an indicator of loss. Increasing expenses is a danger to any organization if net income does not increase with it because this means that the company is spending a lot and is not achieving the expected profit to cover those expenses.
- Net income is calculated by subtracting expenses from the company’s revenues. Companies’ income statements contain special boxes that specify revenues and costs, ensuring a smooth and reliable calculation.
The difference between revenue and income
The following chart illustrates the difference between the company’s net income and its general revenues:
| Comparison | General Revenue | net income |
| the description | Revenues are all the amounts of money received by the company after selling, renting, or otherwise purchasing products. | A term that describes the net profit earned by a company by providing goods and services. |
| Discount | Revenues are the total amount of money received by the company without deducting any costs or expenses. | It is the remaining amount after subtracting the expenses incurred by the company to provide the service or good to customers. |
| Its location in the income statement | In the first line of the company’s official income statement | In the last line of the official statement,. |
| Estimate the amount. | It is always greater than net income. | It is always less than revenue. |
An example of the difference between revenue and net income
When we want to clarify the difference between revenues and net income, there is nothing better than applying an example to one of the prominent Saudi companies. The following example represents Aramco’s method of calculating revenues and net income.
| Year | Revenues | net income |
| 2021 | One billion and 500 million Saudi riyals. | 408 million and 910 thousand Saudi riyals. |
| 2022 | 2 billion and 262 million Saudi riyals. | 600 million and 235 thousand Saudi riyals. |
| Percentage of change | 50%. | 46%. |
In this example, we find that revenues and net income differ in Aramco. This difference represents the expenses that the organization incurred in exchange for facilitating the product’s access to customers, whether through specific marketing methods, operating production lines, licenses, taxes, or other means.
Types of revenue in enterprises
General revenues are classified into many types according to the institution in which they are measured, and the most prominent types of revenues in any institution are the following:
Revenues
It is a general term used in all profit-making organizations to describe any money coming into the financial treasury of the facility or organization.
General Revenues
It means money that comes to governments, administrative systems, and treasuries in general in countries and institutions. The same term can be applied to companies, but it is more appropriate for governments because their sources of revenue are more diverse.
Tax revenue
It is what governments obtain by imposing taxes on individuals or entities located on their territory. It comes in different types and represents important sources of income for countries.
Operating revenues
It is every financial resource that a company or individual obtains in exchange for the goods or services it trades, and it is most closely related to company profits because profitable companies are essentially based on providing a product or service in exchange for a certain amount of money.
Non-operating revenues
Financial resources that the organization obtains in exchange for additional activities provided by the company, such as the money that the company receives in exchange for the sale of one or more of its assets or what it benefits from in terms of grants and gifts from customers or the like,.
Revenue sources
Sources of revenue vary depending on the type of entity whose sources of revenue we want to define. Governments, for example, can obtain revenues from broader sources than companies, and among their most prominent sources of revenue are the following:
Taxes
It is one of the most important sources for governments because it is fixed and periodic. It also serves as a basic source of income and operational revenues for governments.
Enterprise sales
It is one of the most important sources of revenue, and it is simple to calculate because the customer provides it to the company as soon as he obtains the product or commodity. It can sometimes be obtained in parts, in the form of installments, depending on whether the company allows it or not.
Interest income
A type of revenue obtained by financial institutions such as banks. They charge their customers certain sums of money in exchange for keeping the money in them and presenting it to the customer at the time he specifies. Non-financial institutions can also benefit when they sell their products in installments, but it will be part of their non-operating income.
Equity income
It is what the company gets from owning shares of another company that are traded. This is also among the company’s non-operating income and is not a fixed source of money.
Service revenues
It is what the customer pays in exchange for benefiting from the institution’s services, such as education, treatment, equipment maintenance, etc. You can calculate the cost of the service based on the time or type of service provided.
The Importance of General Revenues
General revenues are essential for organizations, regardless of their type, because they help them in the following ways:
The facility relies on this essential source of financing for its production and development operations, employee dues, and other financial obligations.
Revenues that increase in institutions increase their financial level and contribute to the further development of services and products, as well as the production of new goods that enhance the commercial and economic sectors.
Revenues are measured by the organization’s success or lack thereof. If they are not as high as required, this means that the organization may face the risk of dissolution due to failure to achieve its goals.
Revenues help the organization to continue production, and as they increase, they are able to grow and expand.
How are revenues collected?
Organizations can collect revenue in three basic ways:
- Direct payment refers to the process where a customer directly purchases a good or pays for a service when they use it.
- Indirect payment means payment via checks made by the right holder from financial institutions.
- Deduction: A method used by institutions that provide postpaid payments, where they are allowed to access the customer’s account and deduct a percentage of the cost of the item every period, or deduct it in full at a specific date. The government does the same thing with citizens in terms of paying taxes, fines, and so on.
How are expenses recorded?
Organizations use two methods to record their expenses in the income statement:
Cash basis method
This implies that the company records the cost of a product it buys to carry out a specific task, then pays for the purchase and uses it afterwards.
Accrual basis method
Expenses are recorded here when a specific company service is requested and actually completed, such as equipment repair and maintenance services.
Types of general expenses
The concepts of general revenues and expenditures are reflected in their connotations. General expenditures are a description of all the money an institution provides to improve its situation and relationship with the community around it. General revenues in any institution are divided into several types, which are:
Operating Expenses
It is issued to spend on basic activities in the organization, such as purchasing and maintaining the equipment that is manufactured, electricity expenses, employee salaries, etc.
Non-operating expenses
It means spending channels that are not directly linked to production, and they are non-fixed expenses, examples of which are fines and debts.
Current expenditure
Definition: It means all the expenses that the institution commits to periodically, and the goal of these expenses is to ensure the continuity of the establishment’s work.
Investment expenses
It means what is spent on developing the institution, raising production efficiency, issuing new products, cooperating between it and other institutions, and so on.
Transfer expenditures
Money spent to achieve balance can be represented by the money spent on training employees and developing their work environment, or by what the government spends on supporting the poor, grants provided to them, and the like.
The importance of expenses in general
Although it should not exceed specific amounts so as not to cause a budget deficit, the reasons for its importance include the following:
Improving the economic condition of the institution and the country is important because the success and development of the institution will lead to regular payment of taxes in addition to active buying and selling, especially if the goods produced by the institution are exported.
Expenditures improve revenues as long as they are well thought out, so organizations must spend in areas that help them improve their profits and productivity to suit the market and always plan for development.
Preventing the problem of unemployment comes from companies spending on developing work environments. With development, new administrative and productive jobs are created that are occupied by members of society, which eliminates unemployment.
Tracking expenses contributes to measuring the extent of the company’s success in achieving its goals, and at this point, general revenues and costs are consistent.
Why is it important to monitor expenses and revenues on Qoyod software?
The institution must monitor changes in general revenues and expenditures periodically and use appropriate financial analyses because rising revenues are desirable due to their indication of prosperity and the ability to move to the next level. However, high expenses may cause deficits and increase obstacles that may reach a point where the institution is unable to achieve any profits. Then, the institution may collapse and fail to achieve its goals, causing it to disintegrate and dissolve.
The Qoyod accounting system helps you record all revenue sources and spending channels periodically to calculate them and extract net income and all indicators indicating the company’s direction towards achieving gains or losing them by entering the tree of accounts, including creating an account for revenues according to their type.
Conclusion
We elucidated the significance of general revenues and expenditures for companies and organizations across various sectors, emphasizing their multifaceted nature that necessitates accurate counting and diligent monitoring to guarantee the institution’s smooth operation and uninterrupted production. Therefore, you must take the initiative to use the Qoyod accounting system, take advantage of the free trial, and continuously record your company’s revenues and expenses. This will allow you to measure your company’s profits and net income with confidence, enabling you to make appropriate decisions at the right time.
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