Revenue, costs and profit
All businesses should keep proper accounts. This involves the calculation of revenue, costs and profit.
Revenue is the income earned by a business over a period of time, eg one month. The amount of revenue earned depends on two things - the number of items sold and their selling price. In short, revenue = price x quantity.
For example, the total revenue raised by selling 2,000 items priced £30 each is 2,000 x £30 = £60,000.
Revenue is sometimes called sales, sales revenue, total revenue or turnover.
Costs are the expenses involved in making a product. Firms incur costs by trading.
Some costs, called variable costs, change with the amount produced. For example, the cost of raw materials rises as more output is made.
Other costs, called fixed costs, stay the same even if more is produced. Office rent is an…