we will talk about the main income
statement items that affirm will register in its operations we must start
with revenue also known as net sales this item represents an inflow of
economic resources usually the main revenue for a firm is its day to day
sales customers buying goods that the firm sells there can be other sources of
revenue companies can and do make money outside of their core operations for
example they can earn money by renting some of their real estate or by selling
goods they rarely sell the account that unites these sources of additional
revenue is called other revenue when we talk about revenues and we want to
categorize them we must ask one fundamental question is this a type of
revenue that is part of the firm’s core business let’s provide a practical
example think of a dairy company it produces milk and cheese and then sells
it to chains of supermarkets when the company sells milk and cheese daily it
registers sales right its clients the supermarket chains have to pay for the
goods they have received this is the firm’s
core business and the sales made this way will be registered as net sales the
company also rents out a real estate property it owns and receives rental
income which will be registered as other revenue because this isn’t part of the
firm’s core business such a distinction is necessary because it allows us to
separate sales coming from core business activities from income resulting from
non core activities the sum of net sales and other revenue equals total revenue
this distinction has its own merit when someone values a business they are
mainly interested in its core activities if I want to buy Facebook shares and see
in their P&L a huge amount of real estate rent or some other income I’ll
want to value this income separately from the rest of the company’s
activities because this is not what the business is about and different factors
influence the valuation of the two types of income next on our list costs this
will do for now thanks for watching