Sales on Income Statements
As we work through the income statement, we’ll start at the top and work our way down the list. The first item to discuss in this small business financial management lesson is what is usually written as sales or revenue. Total sales refers to the total amount of sales that you made over a certain time period. We’ll use an example to calculate sales and then talk about the different terminology that you might encounter when referring to total sales. To help break down the income statement into its pieces, we’ll use a common example for a small business for each section of the income statement to calculate the company’s profitability.
Total Sales on the Australian Great Ocean Road
When I was in Australia with my friend Steve and my fiancé at the time Sarah (now my wife), we were taking a drive down The Great Ocean Road which is on the south coast of Australia. When we got a hungry during our road trip, we decided to pull over and check out this little food vendor in one of the towns on the coast. I can’t remember the exact name of it so we’ll call it the Fish Shack for these examples. While they sold a bunch of different items, we’ll pretend that all they sold was the fish and chips that I got for $8. Since they were on a busy road, had large portions and the fish was fresh, they seemed to be pretty busy when we were there.
For this example, let’s say that the Fish Shack sold 125 orders of fish and chips per day at $8 each. To figure out their total sales per day, we need to multiply the number of items sold by their total price:
Total Sales = Number of Items Sold x Sale Price
To find the total sales per day, we can multiply 125 times the $8 price for each to get the total daily sales (again, we’ll say for now that this is all they sell for now):
Total Daily Sales = 125 Items Sold per Day x $8 per Item = $1000 per day
To find out how much their total sales are per month, we need to first find how many items they sell in a month and then multiply by the price per item. We’ll say that this month had 30 days in it.
Monthly Items Sold = 125 Items Sold per Day x 30 Days per Month = 3750 Items Sold Per Month
Monthly Total Sales = 3750 Items Sold per Month x $8 per Item = $30,000 per month
Sales Terminology – Many Different Ways to Say the Same Thing
So for the Fish Shack, their total sales were $1000 per day or $30,000 per month. We could use the same method to figure out total sales per quarter, year, and on. Like most of the terms that we’ll discuss throughout these lessons, there’s many different ways that we can say the same thing. Instead of saying sales, you might hear people referring to the top line. This is just another way of saying the total sales on income statements and is called the top line since it’s the first line on the income statement. While we’ve called it total sales for the lesson, we could have also referred to it as total revenue. Both total revenue and total sales are just different ways of saying the same thing.
Adding on to the Fish Shack Menu
Let’s expand the last example and say that the Fish Shack actually sells Fish and Chips and Sushi Rolls. We’ll say that they still sell 125 orders of fish and chips per day at $8 but they also sell 75 sushi rolls at $3 each. How much would total sales (or total revenue) be per day?
Total Sales = Number of each item sold x Price of each item
Total Sales = 125 fish and chips per day x $8 order + 75 sushi rolls per day x $3 sushi roll = $1225 total sales per day
To find out what their total sales or revenue is per month, we just need to multiply the daily sales by the number of days in the month:
Monthly sales = $1225 total sales per day x 30 days per month = $36,750 total sales per month
Key Takeaway: To calculate total sales on income statements, multiply the price of each item by the number of items that were sold in that time period.
Sales, Revenue and the Top Line