How do gains differ from revenues?
Select one:
a. Revenues stem from delivering or producing goods or rendering services while gains stem from events other than those resulting from revenues or investments by owners.
b. Gains stem from an increase in equity of a firm while revenues stem only from an increase in assets.
c. Gains and revenues are both period of time elements.
d. Both A and B are true. e. Both A and C are true.
The correct answer and explanation is:
The correct answer is: a. Revenues stem from delivering or producing goods or rendering services while gains stem from events other than those resulting from revenues or investments by owners.
Explanation:
Revenues and gains are both related to the financial performance of a business, but they arise from different activities and sources. Revenues are the inflows of economic benefits that a company receives as a result of its primary business operations. For instance, a retail store generates revenue from the sale of goods, or a consulting firm earns revenue from providing services. Revenues are directly tied to the core activities of a company and are generally predictable and recurring.
On the other hand, gains are inflows of economic benefits that arise from peripheral or incidental activities, not directly related to the main business operations. An example of a gain could be the profit from selling a piece of property that is not part of the company’s primary operations. These events are often irregular and may not recur with the same frequency or in the same manner as revenues.
While both revenues and gains result in an increase in a company’s equity, they are distinct because revenues are earned through the company’s primary activities, whereas gains result from other activities, such as the sale of an asset or changes in market conditions. Additionally, gains typically have less predictability than revenues.
To summarize, the key difference is that revenues come from the company’s regular operations, whereas gains arise from incidental or one-time events not related to the core operations of the business. This distinction helps in the accurate reporting of financial performance and understanding the sources of a company’s income.