Cash Flow vs. Revenue: Definitions, Differences and Types
By Indeed Editorial Team
Published April 8, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Working in corporate finance requires knowledge and expertise in tracking and documenting financial activities. Depending on your position within your organization, it can be beneficial to understand accounting activities associated with sales, profits and expenses. When reporting financial activities, it's also important to understand how cash flows can influence a company's revenue. In this article, we explore what revenue and cash flow are and the differences between cash flow versus revenue so you can build on your understanding of these important financial values.
What is cash flow?
Cash flow represents the total amount of a company's cash and cash equivalents that move in and out through its various business and sales activities. When analyzing cash flow, businesses typically categorize values as either positive or negative cash flow. A positive cash flow usually indicates increases in liquid assets, which allows a company to pay down debts more quickly and reinvest earnings into activities that support business growth. A negative cash flow, conversely, can indicate that a company's assets are decreasing in value or aren't sufficient to cover short-term debts, like dividend payments and business expenses.
Related: Guide To Cash Flow
What is revenue?
Revenue represents the total income a company generates through product or service sales and comes directly from the company's primary business activities. Businesses and organizations record revenue as the top-line income value on an income statement, as this value is the total amount in income before companies deduct expenses, taxes and interest. Although revenue can come from sales transactions, it accounts for all types of income, in addition to sales earnings.
For instance, a company's revenue can come from investment returns, capital gains and interest from bonds, along with product or service sales. Businesses can report revenue for taxes and financial documentation using different accounting methods, depending on the industry and types of transactions. For instance, companies that provide wholesale products may record the majority of revenue as net sales because product sales create the most income.
Types of cash flow
When companies track and report cash flow, there are several categories that encompass this type of income:
Financing cash flow
Financing cash flow typically comprises the costs associated with equity or debt financing. Equity financing encompasses the costs of building capital to increase business value, while debt financing accounts for outgoing cash flow to dividend, loan, credit or stock repurchase payments. Companies monitor financing cash flow to ensure timely payments for capital interest and credit lines. This type of cash flow is always outgoing, as it accounts for the short-term and regular expenses associated with financing ongoing business development.
Investment cash flow
Incoming cash flow from investments can comprise interest earnings, returns and capital gains. A company's liquid assets also account for incoming investment cash flows, as companies can convert assets like cash equivalents, equipment and properties to usable funds. Outgoing cash flow from investment activities can include dividend payments, security and stock purchases and interest expenses.
Operating cash flow
Operating cash flow comes from a company's normal business operations and includes both incoming and outgoing values. Incoming operational cash flow often accounts for a company's sales earnings, which can include revenues. Outgoing cash flow can encompass operational expenses, cost of goods sold and overhead costs. Operational cash flow can also account for the incoming and outgoing money from both short- and long-term assets and liabilities.
Read more: What Is Operating Cash Flow?
Types of revenue
Businesses and organizations often account for several types of revenue:
Operational revenue accounts for the gross income companies generate from regular business activities. This value is the total revenue minus all costs of goods sold (COGS) and operational expenses. When accounting for operating revenue, businesses also record this value as the realized profit after deducting depreciation, salaries, overhead and costs for supplying business operations.
Nonoperating revenue comprises all earnings that come from secondary sources, such as income from selling off assets or collecting on investment gains. This type of revenue can also account for losses in capital and other transaction, like asset sales and currency exchanges. Dividend income may also comprise nonoperating value, depending on a company's shareholdings. Nonoperating revenue can sometimes account for incoming cash flow, especially revenues from liquidated assets.
Accrued revenue represents the expected earnings resulting from sales transactions. In many cases, companies that earn accrued revenue gain this income from selling products or services to customers on credit, where the customer receives the product or service but has yet to complete payment. When accounting for accrued revenue, businesses usually report the revenue at the time of the transaction rather than when customers actually make payments.
Unearned revenue represents the money that a business collects when selling to customers but has yet to deliver the product or service. This revenue primarily accounts for prepayments customers make when purchasing from a company. Reporting unearned revenue only takes place once customers receive the products or services for their prepayments.
Related: How To Calculate Revenue
Cash flow vs. revenue
Although a company's cash flow can add to its overall revenue, there are several key differences between these two financial metrics, including:
Companies report revenue and cash flow differently. With revenue, reporting includes all accrued revenue, whether companies collect payments on delivered products or services at the time of reporting. In contrast, companies only report incoming cash flow as they generate it, without accounting for prepayments for sales, investment activities or expenses. This distinction is important for tax reporting because accounting for unearned revenues may not be a requirement, depending on the specific period.
The financial documents companies use to track and record revenue and cash flow also differ. When documenting revenue, companies record this data on the income statement, which includes line items for gross and net revenues, expenses and gross and net profits. In contrast, the cash flow statement records all incoming and outgoing cash and cash equivalents, and companies account for operational, investment and financing cash flows on this document. The cash flow statement can also provide greater financial insight than an income statement, as it tracks current distributions of all assets and liabilities, in addition to realized incomes.
Unlike accounting for cash flow, accounting for revenue can use several methods. Typically, businesses use accrual accounting, which tracks and records revenue streams as they occur, regardless of whether customers use credit to purchase products or services. Other revenue accounting methods also include cash-basis accounting, sales accounting and accounting for recognized earnings. Accounting for cash flow only occurs on the cash flow statement, which companies use to measure and track operational, investment and financing cash flows.
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