Revenue is anything you earn in exchange for providing a product, service or an asset for use. Revenue could include cash, cows, dogs, etc. In short, anything you get back in return for providing something of value while running your business is income to you. Obviously, if you get any item other than cash, you will have to include the fair market value of the item received as income.

There are 2 ways to classify revenue namely:

Operating revenue:

Revenue from operations or operating revenue is what you earn while running your business. As a business owner, you should have a purpose for running your business. Any income you receive from delivering value according to your purpose is operating revenue. For example, revenue to an online blogger will include e-book sales, advertising revenue, and paid membership.

If you have more than one source of revenue from your business, you should categorize each revenue source differently. This allows you to see how profitable each product or service is doing. However, if a line of product is insignificant compared to your other income, classifying that line of product into an “other income” category is okay.

Example:

Joe Blow in an internet entrepreneur and earns income from three sources namely: e-book sales, membership site subscription and advertising on his podcast. In Joe Blows financial software, he will create three different revenue accounts for each source of income as follows:

• E-Book Sales
• Membership site subscriptions
• Advertising revenue

Now, let us assume that Joe Blow occasionally earns money from guest blogging and consulting. Together these two income make up less than 15% of his revenue. It will be okay for Joe to create a category called other income where he classified these infrequent revenue sources that are insignificant when compared to his main source of revenue. This is because when classifying accounts, you have to be aware of the cost/ benefit analysis. The time it takes to analyze and review an account has to be less than the benefit you receive from the information.

Non-operating revenue:

Non-operating is revenue that is incidental to running your business but not part of your regular operations. This is different from the items I described as “other income” above. The items classified in the other income category is part of your regular operations even though it is an insignificant part of it.

With non-operating revenue, income you receive is not part of your regular operations. Normally, this is income you receive from renting or loaning out an asset (assuming you are not in the rental or loaning business). For example, you save your cash in the bank till you are ready to use it. Saving your money to the bank is synonymous to loaning your money to the bank. In exchange of having access to your cash, the bank pays you interest. This interest will be classified as non-operating income in your financial software.

Another example, will be sharing your office with another business and collecting rent. If you are not in the rental business, the rent received will be non-operating revenue.

In summary, revenue can be classified as operating or non-operating. When classifying revenue into accounts be careful to do a cost/ benefit analysis so you are optimizing your time. The more accounts you have the more work it is to keep your books clean.

In the next post, I will talk about categorizing expenses.