Definition of Revenues

Revenues are the financial amounts that an entity receives from conducting its primary activities, whether from selling goods, providing services, or any other commercial activities during a specific time period.

Types of Revenues

Revenues are divided into two basic types according to their relationship with the entity's primary activity:

• Operating Revenues: These are income generated from the basic and primary activities that the entity conducts regularly and continuously, such as sales revenues for commercial companies, service revenues for service companies, and production revenues for industrial companies. These revenues are considered the primary source of the entity's income and reflect its ability to generate cash from its core operations, and are used as a key indicator for evaluating business performance and growth

• Non-Operating Revenues: These are income generated from secondary or investment activities that do not form part of the entity's primary activity, such as interest received from bank deposits, profits from financial investments, and profits from selling fixed assets. Despite their importance in improving overall profitability, they do not reflect the true operational performance of the entity and cannot be relied upon as a sustainable source of income

Revenue Recognition Principles

Revenue recognition is subject to basic accounting principles and rules that ensure correct and fair recording of revenues in financial statements. These principles determine when and how revenues are recorded to ensure accuracy and reliability of financial information. The most important revenue recognition principles include:

• Realization Principle: Revenues must be realized or reasonably realizable, meaning they must result from an actual transaction with an external party
• Earning Principle: Revenue is recognized when it is completed or actually earned, i.e., when goods are delivered or services are fully completed
• Accrual Principle: Revenue is recorded when it is realized, not when cash is received, regardless of the timing of actual collection
• Transfer of Control: Revenue is recognized when control over goods or services is transferred to the customer and risks and benefits are transferred to them
• Reliable Measurement: The value of revenue must be measurable reliably and accurately without significant ambiguity

Where Revenues Appear in Financial Statements

Revenues appear in several places within financial statements:

1. Income Statement

The primary and most important place for revenues to appear, where they are displayed in the upper part of the statement as the first item, classified into operating and non-operating revenues. They form the starting point for calculating all levels of profit.

2. Cash Flow Statement

Revenues appear within the cash flows from operating activities section, either as cash collected from customers (direct method) or as part of net income adjustments (indirect method).

3. Statement of Financial Position

The effects of revenues appear indirectly through accounts receivable (revenues due for collection) and advance payments from customers (liabilities).

Difference Between Revenues and Related Concepts

Concept	Definition	Difference from Revenues	Example
Revenues	Total income from primary activities	Basic concept	Sales worth 100,000 SAR
Sales	Sale of goods and products only	Part of revenues, does not include services	Sale of goods worth 80,000 SAR
Income	Net amount after deducting costs	Revenues minus expenses	Revenues 100,000 - costs 70,000 = 30,000
Profits	Surplus after deducting all costs	Final result after deducting all costs and taxes	Revenues 100,000 - costs 70,000 - taxes 5,000 = 25,000