Creating an Income Statement

In general, revenue refers to the amount of money realised through business activities. In some cases, an income statement may break revenue down further into 'operating revenue' and non-operating revenue'.

Revenue gained through a business's primary activities is referred to as operating revenue.

For example, if a company offers a product or service, operating revenue refers to the money earned by the business through the sales of that product or service.

Revenue gained through a business’s secondary activities is referred to as non-operating revenue. 

This revenue is attained by means outside of the sales of goods or services. For example, investment income or rental income from an unused property are both classified as non-operating revenue.

Note that non-operating revenue is still 'recurring revenue', meaning that this revenue is realised on a regular basis. One-time nonbusiness income, such as a company selling old or unused machinery, falls into the 'gains' category.

Money earned from other one-time business activities is referred to as gains. For example, the sale of old machinery, unused land, or money earned from lawsuits falls under gains.

An expense is a cost incurred by a business as part of its daily operations to generate revenue.

For example, the cost of goods sold (COGS), employee wages, utility bills and research and development (R&D) costs are all classified as expenses because they are required to keep the business functioning and generating a profit on a day-to-day basis.

A loss is a one-time, unexpected event resulting in a financial loss. For example, lawsuits, theft and damage to property are all unplanned costs, meaning they are classified as losses.