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Random Research on various notions

No. 2

Note: This writing is the mere product of my curiosity and will not constitute a formal

opinion of any sort. Though, all/any comments are welcome.

Income - Profit - Revenue - Turnover: are they synonymous?

I am not a native speaker. However, I did encounter quite a few troubles, just trying to

understand the concept for tax law translation purpose. So let us take a good look at how it is

explained by various native speakers. Here is one of them from the U.S.1:

- Revenue is the top line amount corresponding to the total benefits generated frombusiness activity. Income is the bottom line amount that results after deducting

expenses from revenue. In some countries, revenue is also referred to as turnover.

This gives rise to an accounting equation:

Revenues Expenses = Income

Here is another one from New Zealand2:

- Income is all the money that comes in. Also known as revenue or turnover; Profit iswhat is left over after we deduct all expenses from income; Example, our

revenue/income/turnover is the money that the clients pay when we invoice them;

And the profit (or loss) is what we have left after deducting electricity, salaries and

other expenses;

This gives rise to the same accounting equation, but expressed in a different manner:

Revenues Expenses = Profits

Implications:1. Now we understand that Revenues and Turnover are synonymous in both examples.2. Income and Revenues are not synonyms in the 1st example.3. Income and Revenues are synonyms in the 2nd example. And there is Profits.

Additional facts:

One of the 4 most significant financial statements is called:Income Statement. Some people

also call it: Profit and Loss Statement. We know that Loss is not a synonym of Income. So

1ExplanationfromaU.S.website.2MypreviouscolleaguewasfromNewZealand.

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there is no worry about the term Loss, at least not for now. But does that make Profit a

synonym of Income?

Additional implications:

1. It makes sense that Profit and Income are synonymous based on the 1st examplebecause they are the bottom line amount that results after deducting expenses fromrevenue.

2. But they cannot be synonyms for the 2nd example because Income does not resultfrom the deduction.

This means Income is a mysterious term for translation purpose. It can be either the top lineamount in the 2nd example or the bottom line amount, in the 1st example. Let us go a littlebit deeper into the Income, as in Gross Income andNet Income.

Gross Income vs. Net Income:

- Gross Income: A company's revenue minus cost of goods sold. Also called "grossmargin" and "gross profit". The equation is thus:

Revenues Cost of goods sold = Gross income

- Net Income: Net income is calculated by taking revenues and adjusting for the cost ofdoing business, depreciation, interest, taxes and other expenses. So Net Income is the

bottom line.

Example:

XYZ Co., Ltd.

Income Statement

For the Year Ending December 31, 20x5

Sales $ 300,000

Cost of goods sold $ 220,000

Gross profit $ 80,000

Operating expenses

Advertising $ 6,000

Salaries $ 9,000

Rent $ 5,000 $ 20,000

Net Income $ 60,000

From this example, Sales / Revenues Cost of goods sold = Gross Profit

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A subsequent example:

XYZ Co., Ltd.

Income Statement

For the Year Ending December 31, 20x8

Revenues

Net sales $ 753,000

Expenses and Losses

Cost of goods sold $ 283,000

Selling expenses $ 142,000

General & administrative $ 270,000

Loss on sale of land $ 2,000

Interest expense $ 7,000 $ 704,000

Income Before Tax $ 49,000

Income tax expense $ 10,000

Net Income $ 39,000

From this example, Revenues (Net Sales) Expenses and Losses (cost of goods sold, sellingexpenses, general & administrative, loss on sale of land, interest expense) = Income beforetax.

Income before tax Income tax expense = Net Income.

My personal, final assumptions:

1. The top line amount is called: Revenue, turnover.2. In between there is Gross Income or Gross Profit. This amount is not either the top

line or the bottom line amount.3. The bottom line amount is called: NetIncome or NetProfit.

Finally, to say income or Profit alone is not helpful. Its more helpful to put Gross orNet before the term, because the gross amount is not the bottom line amount3 whilst the netamount is.

Phnom Penh, 20 June 2012THARA Rathvisal

3AnditsinterestingthatbyGross,itdoesnotrefertothetoplineamount(notrevenue)either.