In accounting sales revenue refers to the monetary amount from the sale of goods in which the business normally trades and which were bought for the purpose of resale. Since this relates to the normal operating activities of the business it is sometimes referred to as operating revenue.
For this reason revenue will always affect the inventory of the business. If a business normally sells widgets then the ‘sale’ of for example, a motor vehicle used within the business, is not included in sales revenue.
Sales revenue is often referred to as simply revenue, sales, or turnover and normally these terms can be used interchangeably and mean the same thing. In the stricter sense, sales specifically refers to the act of selling whereas revenue is the monetary value of the sales. Income is sometimes used but usually refers to a business in which services rather than goods, are sold.
Sales revenue includes both cash and credit sales. Credit sales are sales made by a business to a customer which do not require immediate payment. The customer has an account with the business, and will be required to pay in accordance with the credit terms agreed with the business, for example they may be required to pay in 30 days time.
The balance outstanding on the customers account is an asset of the business called accounts receivable, and represents money owed by the customer. Credit sales are sometimes referred to as on account sales.
Normally businesses sell on credit so if for example you sell goods to the value of 1,000 in March and are paid in 30 days in April, the aales for March are 1,000 but the cash received is zero.
If the business uses the accrual method of accounting, sales are normally recognized in the financial statements at the time the goods or services are passed to the customer and the customer incurs liability for them.
How do you Record Sales Revenue?
Sales revenue is normally first recorded in the Sales Day Book and not directly into the General Ledger
If for example, sales are made on credit to Customer A for 200 and Customer B for 400 the first entry would be to the sales day book to record the sales.
The next entry would be to the sales ledger to record the accounts receivable to the personal accounts of each customer.
Finally the double entry posting would be the total from the sales day book and the sales ledger.
At the end of the accounting period the balance on the revenue account is transferred to the income statement and the account is closed. At the start of the next accounting period the account is re-opened with a zero balance. For this reason revenue accounts are referred to as temporary accounts.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.