Total sales revenue, also known as gross sales, is the combined value of goods and services a business delivers to its customers during a specific reporting period.
What Is Total Sales Revenue?
On a multi-step income statement, total sales revenue is the number at the top that describes how much money is taken in before adjusting for returns, discounts and allowances.
The term the business uses to describe revenue from sales depends on whether the business is using a multi-step or single-step income statement. To put it simply, a multi-step income statement uses multiple calculations to arrive at a business’s net income, while the single-step method uses one equation.
Total Sales Revenue vs. Total Revenues
Taken together, sales revenue and adjustments give a business its net sales revenue.
Net Sales = Gross Sales – Adjustments
This line item represents only income from sales of products and services directly related to the company’s core business. Income and losses from non-operating activities are noted further down on the income statement.
On the other hand, a single-step income statement provides a snapshot of the business’s total revenues under “total revenues”—which includes its revenue from sales of products and services and any income generated from non-operating activities. Total revenues are calculated by adding together sales revenues, interest revenues and any revenues from gains on the sale of assets.
- Accurate accounting of total sales revenue is essential to determining the business’ profitability from its core business activities.
- It is the foundation for performing more complex revenue analysis that will allow the business to project its profitability, keep its operating expenses in line with sales growth and see which products and services are resonating, and which are not.
- Total revenue can include income generated from activities not related to the company’s core business, such as earned interest and dividends.
- Total sales revenue includes everything that was delivered in a given period, regardless of whether payment was received.
Total Sales Revenue Explained
Total sales revenue is the value of all the products and/or services company sold over a given time period. Total sales revenue is not adjusted for returns, discounts and adjustments in calculating net revenue.
Sales vs. Revenue
All sales are revenue, but all revenue does not necessarily come from sales. Revenue from sales is also called direct revenue or operating revenue. It is the result of activities related to the company’s core business. But total revenue can include income generated from activities not related to the company’s core business, such as interest earned on savings or dividends paid from stock in another company.
What Is Revenue Recognition?
Revenue is not the same as receipts. According to generally accepted accounting principles (GAAP), revenue is recognized when it is earned, not when cash is received.
The terms accrued and deferred revenue come into play here. For instance, consider that a customer pays a vendor to reserve a bouncy house in May for a birthday party in June. The revenue will not be recognized on the income statement until the bouncy house is delivered in June, even though the customer paid the vendor in May. That’s deferred revenue. If the vendor provides a popcorn machine for the party as well but does not require payment for that machine until July, that revenue can be recognized in June, because that’s when the product was delivered. That is accrued revenue.
What Does Total Sales Revenue Include?
In accrual accounting, total sales revenue includes everything that was delivered in a given period, regardless of whether payment was received. For companies that deliver one-time products and services, this is straightforward. But it can get complicated for companies that sell subscription services—something that the revenue recognition standard ASC 606 aimed to clarify by providing stipulations and guidance around how to recognize revenue associated with contracts.
Why Your Business Needs to Calculate Total Sales Revenue
Calculating total sales revenue is the first step toward calculating net profit—or the bottom line—on a multi-step income statement.
Three Steps to Calculate Total Sales Revenue
- Determine the number of units sold, or the satisfied performance obligations in which a promised good or service was transferred to a customer.
- Determine the average price (if you sell multiple types of products or services, you’ll do this for each type).
- Multiply the number of units or services sold by the average price per unit (if you sell multiple types of products, you’ll do this for each and add the results together to get your total sales revenue).
Total Sales Revenue Example
What’s an example of total sales revenue? Take Moe’s Marvelous Lawn Care Service. Moe booked four customers in June and mowed their lawns in June for $30 apiece, though the customers will not pay him until the next time he comes to mow the lawn. Moe already delivered the service, so his total sales revenue, or gross sales revenue, on his June income statement is $120.
Total Sales Revenue and the Income Statement
On a multi-step income statement, total sales revenue is the first line, and further additions and deductions are made from that base. But perhaps Moe also has savings in his business account that generated interest of $100 in June. That is revenue, but it is not sales revenue because it is not directly related to his core business. On a multi-step income statement, it would be recognized as non-operating income near the bottom of the statement.
On the other hand, on a single-step income statement, all revenues and gains are listed at the top and summed up to arrive at the business’s total revenue. Using that same example, sales revenues of $120 plus interest revenues of $100 would result in $220 in total revenue for Moe.
Total Sales Revenue and Technology
As a business adds more products and services and sells items in more places, accounting will become more complex. If the company has different systems to manage different functions—accounting processes, point of sale, and inventory and orders, for example—and those systems don’t talk to one another, they’ll require a lot of manual intervention and possibly introduce mistakes when accounting for key metrics like total sales revenue. With one platform to handle accounting functions—such as an ERP —the business gains countless benefits in terms of accuracy and efficiency, as well as a view of all those functions’ progress in real time.