I’m going to start with the terms I think I understand, and move to the ones I don’t. Please correct the ones I have wrong, and explain the ones I don’t understand.
I’m pretty sure I understand revenue. Revenue is the money you bring in from your usual business activity. E.g., if I have a company that sells sprockets, and I sell 100 sprockets at a price of $5 each, then my revenue is $500 dollars.
I think I understand income. Income is the money you bring in minus the money you spend - but it comes in different flavors:
[li]Gross income is the revenue you made from selling stuff minus the cost to make what you sold (at least for a company that sells stuff; I’m not sure what it means for other kinds of companies.) So, if I sold 100 sprockets at a price of $5, but each sprocket cost $3 to make, then my gross income is $200.[/li]
[li]Operating income is the money you make from your main business function (e.g., selling stuff) minus the money you spend on your main business function. This differs from gross income in that it includes things that don’t scale with how many units you sell, e.g. salaries, rent you pay on the sprocket factory, etc. This is where I don’t understand the distinction if a company doesn’t actually sell products. And I’m not totally clear on whether some of your salary expenses should be included in gross income - presumably the number of hours of work you pay the folks on the assembly line scales with how many units you make, right? I’m also not clear on if this includes the cost of unsold units.[/li]
[li]Net income is the total money you bring in minus the total you spend. This includes things that aren’t related to your main business function, like if you won or lost a lawsuit, or if you made money from some investments that went up in value, or taxes.[/li]
[li]Pre-tax income - I think this is the same as net income except excluding income tax from the calculation?[/ul][/li]
I don’t understand profit or earnings. I’ve seen some sources that seem to be saying earnings means operating income, and profit means net income. But I’m pretty sure I’ve seen “gross” and “net” applied to profit and earnings as well. So are they really just synonyms for income?
Is there a standard meaning of “income” when it isn’t modified by “gross”, “net”, etc.? Or is it ambiguous? What about “earnings” or “profit”?
I’ve also read that net income isn’t the same as the change in your money held, because “you could be reinvesting that money in the business”. But I don’t understand that - shouldn’t the money I “invested in the business” be part of my expenses in the net income calculation?