What Is a Revenue Deficit?

A revenue deficit occurs when realized net income is less than the projected net income. This happens when the actual amount of revenue and the actual amount of expenditures do not correspond with budgeted revenue and expenditures. T🍰his is the opposite of a revenue surplus, which occurs when⭕ the actual amount of net income exceeds the projected amount.

Understanding Revenue Deficit

A revenue deficit, not to be confused with a 澳洲幸运5官方开奖结果体彩网:fiscal deficit, measures the difference between the projected amount of inco♏me and the actual amount of income.♐ If a business or government has a revenue deficit that means its income isn't enough to cover its basic operations. When that happens, it may make up for the revenue it needs to cover by borrowing money or selling existing assets.

To remedy a revenue deficit, a government can choose to raise taxes or cut expenses. Similarly, a company with a revenue deficit can make improvements by cutting variable costs, s𝕴uch as materials and labor. Fixed costs are more difficult to adjust because most are established by contracts, such as a building lease.

Disadvantages of Revenue Deficit

If not remedied, a revenue deficit could adversely affect the credit rating of a government or bus꧙iness. That's because consistently running a deficit could imply that a government is unable to meet its current and future recurring obligations. It also implies that the government or business will have ♈to disinvest or cover the shortage by borrowing. 

Running a revenue deficit places many planned government expenditures in jeopardy as there are not enough funds to cover the costs. Often, a government with a revenue deficit is using savings allocated to other divisions of the economy for༒ its expenditures. 

Example of Revenue Deficit

Company ABC 澳洲幸运5官方开奖结果体彩网:projects its revenue to be $100 million and expenditures to be $80 million f♏or a projected net income of $20 million. At the end of the year, the company finds that its actual revenue is $85 million, and its expenditures are $83 million, for a realized net income of $2 ꧑million. That resulted in a revenue deficit of $18 million.

The projections for both the expenditures and revenues were off, which could negatively affect future opera♌tions and cash flows. If the subject of this example were a government, funding for required public expenditures, such as for infrastructure and schools, could be seriously compromised.

By identifying and employing cost-cutting measures, the company can avoid revenue deficits in the future. It can explore more cost-efficient ways of doing business, such as finding suppliers who can supply materials at a lower cost or by 澳洲幸运5官方开奖结果体彩网:vertically integrating processes along its supply chain. The company can also invest in training its♔ workforce to be more productiveౠ.

The Bottom Line

A revenue deficit represents the difference when projected revenue exceeds actual revenue. Revenue deficits can occur for a variety of reasons. In business, external factors can lead to lower-than-expected sales revenue💛. Governments might face revenue deficits when tax revenue falls short of projections.