What is Revenue in Commerce... Explain?

Answer 1

Earnings; what a company makes in monetary terms from its activities. Not to be confused with profit, since expenses have to come out of revenue.

Gross Inflows View

Definition of revenue: The gross inflows view defines revenues in terms of the consideration from the reporting entity's customers over which the reporting entity obtains control.

Alternative interpretations of that view reflect revenue as the stated contract price, the amount paid by the customer, or the amount received by the reporting entity.

Liability Extinguishment View

Definition of revenue: Revenues are decreases in the reporting entity's liabilities to customers resulting from the extinguishment of its performance obligations for which it is primarily liable. Those obligations are extinguished by providing goods and services to customers, either directly by the reporting entity itself or indirectly by having third parties provide them on its behalf.

Under the liability extinguishment view, revenues arise only from the extinguishment of "performance obligations". A performance obligation is a legally enforceable obligation of a reporting entity to its customer, under which the entity is obligated to provide goods or services. Performance obligations are extinguished by the performance of the reporting entity's promises to provide the customer with goods or services, regardless of whether the entity does so directly or indirectly.

Other obligations that can arise from customer contracts are debt obligations and "custodial obligations". With custodial obligations, the reporting entity is the "custodian" of assets for another entity, such as a customer or a taxing authority. A custodial obligation may be defined as an obligation requiring the reporting entity to pass on assets to other entities for activities it is not responsible to perform.

Broad Performance View

Definition of revenue: Revenues are increases in the reporting entity's assets (including inflows of assets or enhancements of assets) or decreases in its liabilities resulting from activities that are integral to the provision of products (goods and services) by the entity itself that are ultimately destined for customers.

The key feature of this definition is that the reporting entity generates revenues only in respect of the activities it performs itself.

Under the broad performance view, if the reporting entity provides goods it owns to customers, revenues arise from satisfying its performance obligation to provide those goods. This is regardless of whether the reporting entity subcontracts the manufacture of part or all of those goods, and whether the entity owns those goods momentarily.

The definition of revenues includes inflows of additional assets and enhancements of existing assets resulting from activities that are integral to the entity's provision of goods and services.

Value Added View

Definition of revenue: Revenues are the excess of the value of the reporting entity's outputs in the form of goods and services that it creates over the costs of its inputs in the form of materials and services that it purchases from other entities.

Value added might be defined more narrowly by also excluding the value of all other factor inputs such as the wages of the reporting entity's employees or interest accrued to its creditors. That would leave profit as the measure of revenues. Yet another possibility might be to interpret value added as the entity's gross margin.

During its last meeting, the FASB rejected the "Gross Inflows View" and the "Value Added View" and asked its staff to concentrate on the other two views. The IASB Board also rejected the "Gross Inflows View" and the "Value Added View" as drafted. They believe the "Value Added View" has predictive value disclosure benefits and may be reconsidered from that point of view at a later stage.

There was support for considering what should be excluded from revenue under the "Gross Inflows View" view (for example, custodial and agency collections) and comparing this to the two remaining views.

Board members questioned whether the remaining two views encompassed asset enhancement, such as growth in agricultural assets. Staff suggested that such enhancement is within revenue under the "Broad Performance View" not under the "Liability Extinguishment View". One Board member suggested the Board should not be concerned whether this is classified as revenue or as "other gains".

Several Board members expressed support for subdividing revenue into components, such as sales and gains on assets (if included).

The staff asked the Board to consider whether once they had agreed on a definition of revenue, they would want to consider the recognition criteria on a different view. The Board did not support this, though a formal vote was not taken.

Answer 2

It is a small part of money made in a transaction, due the government, normally.