Revenue and income are NOT the same things
Costs and expenses are NOT the same things
Net income and free cash flow are NOT the same things
Confused? Let me break it down for you:
Sales and revenue mean the same things.
Both are the money that comes in from customer payments.
They both refer to the “top line” of the income statement.
Both are the money that comes in from customer payments.
They both refer to the “top line” of the income statement.
Orders and sales are NOT the same things.
Orders are when a customer places a request for the future delivery of a product or service.
Orders become sales when the product is actually shipped, or the service is performed.
Orders are when a customer places a request for the future delivery of a product or service.
Orders become sales when the product is actually shipped, or the service is performed.
Costs are different from expenses.
Costs are money spent on making a product or delivering a service (hence "cost of goods sold")
Expenses are money spent on developing, selling, accounting for, and managing the product or service.
Costs are money spent on making a product or delivering a service (hence "cost of goods sold")
Expenses are money spent on developing, selling, accounting for, and managing the product or service.
Costs and expenses both become expenditures when money is actually sent to the vendors to pay the bills
Profits, earnings, and net income all mean the same thing.
They are the “bottom line” of the income statement
They all represent what is left over after all of the costs & expenses are subtracted from the revenue
They are the “bottom line” of the income statement
They all represent what is left over after all of the costs & expenses are subtracted from the revenue
Net income and free cash flow are NOT the same things!
Net income measures profitability on the income statement using accrual accounting.
Free cash flow measures cash flow that is available to shareholders on the cash flow statement using cash accounting.
Net income measures profitability on the income statement using accrual accounting.
Free cash flow measures cash flow that is available to shareholders on the cash flow statement using cash accounting.
Accrual accounting and cash accounting are not the same things
Accrual accounting: revenue or expenses are recorded when they occur, not when payment is received or made
Cash accounting: transactions are recorded only when money goes in or out of an account
Accrual accounting: revenue or expenses are recorded when they occur, not when payment is received or made
Cash accounting: transactions are recorded only when money goes in or out of an account
Summary:
1: Revenue & Sales = Same
2: Costs = Making product/service
3: Expenses = Running the business
4: Profits, Earnings, Net Income = Same
5: Net Income = Accrual Accounting
6: Free Cash Flow = Cash Accounting
7: Accrual Accounting = 💳 ⌛️
8: Cash Accounting = 💵 ↔️
1: Revenue & Sales = Same
2: Costs = Making product/service
3: Expenses = Running the business
4: Profits, Earnings, Net Income = Same
5: Net Income = Accrual Accounting
6: Free Cash Flow = Cash Accounting
7: Accrual Accounting = 💳 ⌛️
8: Cash Accounting = 💵 ↔️
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