Operating revenue

Operating revenue is the sales associated with the normal daily operations of a business. For example, the meals sold by a restaurant would generate operating revenue, while the sale of its delivery van would instead generate a gain or loss. The concept of operating revenue is important, because it reveals the core sales productivity of a business. Operating revenue information is especially valuable when tracked on a trend line, since it can reveal spikes or declines in sales activity that could indicate a long-term trend.

Some organizations try to mask declines in their operating revenue by consolidating this amount with revenues generated by non-operational aspects of their business. If the proportion of these non-operating revenues gradually increases over time, it is a possible indicator that a business is scrambling to hide a decline in the revenue generated by its core activities.

The concept can be further refined for situations in which the sales of a business are largely comprised of sales related to a single contract or customer. If this information can be broken down to separate the single-source revenue and all other revenue, it can indicate whether the source upon which the company is dependent is generating a declining trend of revenues, which can indicate a major problem for the continued existence of the business.

What constitutes operating revenue can be difficult to resolve, especially when a business is transitioning out of one product line or industry and into another. In this situation, it is possible that the revenues associated with both areas are operating revenue, but that the one related to the new area is more important, since this is the direction in which the company is headed.

Related Courses

Bookkeeping Guidebook 
GAAP Guidebook 
New Controller Guidebook