Difference between Turnover and Revenue

Key Difference: Turnover refers to how many times a company burns through assets such as cash, inventory, workers, etc. However, revenue represents the money a company earns by selling its goods and services for a price to the consumers.

The terms turnover and revenue are two terms that play a huge part when it comes to business and accounting. These are often confusing for many people who are not well versed with accounting terminology. More confusion arises from articles across the internet that suggest there is no difference between the terms, other that the geographical location of where it is being used. Understanding these terminologies can be help a business run more efficiently.

According to Wikipedia and multiple web pages, revenue is the term used for money acquired by the sale of goods. This definition is also termed as turnover in the United Kingdom. Hence, there is no difference in the definition of these two terms.

However, when we look at the business and accounting aspect of the two, there is actually a huge difference between turnover and revenue in accounting. Turnover refers to how many times a company burns through assets such as cash, inventory, workers, etc. However, revenue represents the money a company earns by selling its goods and services for a price to the consumers. The figures are generated using accounting ratios, which involves dividing one accounting figure with another.

Turnover can be of three kinds: cash, inventory and labor. Cash turnover determines the how much cost does a company endure in order from start to end in order to offer the product or service to the consumer. Cash turnover determines how much a company must spend in order to earn what it is earning. Ideally, this should be less than the money earned, in order to earn a profit.

Similarly, inventory turnover is the number of products that are being not being held in the inventory of the company. For example: if a company keeps the target of producing 100 products and keeping them in inventory, inventory turnover would be how many times does the company produce 100 products in order to keep the inventory full in an accounting period. This turnover is calculated by dividing cost of goods sold by average inventory.

Sales turnover tells the company how many times it burns through its cash reserve in an accounting period. This is determined by dividing revenue by cash. Finally, labor turnover is basically the amount of people that a company fires and hires during an accounting period. This generally should be as lesser people should be leaving the company. The more people that are fired or quit, result in higher training costs.

Revenue is basically the earning of the company. This is determined by multiplying the number of products sold with the selling price of the product in the market. Anything that a company earns in an accounting period is counted under revenue. Revenue minus the cost incurred results in the profit a company makes.

Comparison between Turnover and Revenue:

 

Turnover

Revenue

Definition

Turnover refers to how many times a company burns through assets

Revenue represents the money a company earns by selling its goods and services for a price to the consumers.

Types

Sales, Inventory Labor and Cash

N/A

Image Courtesy: talentbitsandbytes.com, greatsmallbusinessadvice.com

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