How to calculate and improve sales revenue: using the sales revenue formula


Accounts payable include all goods and services billed to the company by suppliers that have not yet been paid. Accrued liabilities are for goods and services that have been provided to the company, but for which no supplier invoice has yet been received.

Why do we calculate revenue?

It tells a company clearly how much money it is bringing in from the sale of its product. Changes in revenue can be analyzed to determine if marketing strategies are working, how price changes affect the demand for the product, and a multitude of other insights.

The money that is paid out of a company for items necessary for daily operation is called expenses. The money that’s paid to investors as a return on their investment is called dividends. When you add those three accounting classifications to the basic accounting equation, you have something called the extended equation.

Limitations of the Accounting Equation

The accounting equation holds at all times over the life of the business. When a transaction occurs, the total assets of the business may change, but the equation will remain in balance.

One is to consider as any assets left over after deducting all liabilities. In fact, the equation for determining how much equity a company has is subtracting the company’s liabilities from its assets. To calculate the percentage of service revenue against total sales, take your service revenue and divide it by total sales. When you invest money in the business, your bank account will go up. The business purchases a piece of equipment for $4,000 cash.

Sales revenue formula: How to calculate sales revenue?

Revenue coming in is good for the business and helps to increase its value. The business takes out a loan for $10,000 to provide cash to purchase equipment and start operations. The business is giving the bank a promise to pay in the future with assets generated from operations. A loan from the bank is more specifically called a note payable. Once profits are generated the business can either keep those profits within the company to grow the business or protect against future downturns. The business can also choose to pay those profits out to the owners in the form of dividends or distributions. The profits that the business keeps are added to retained earnings.

What is the formula for revenue and profit?

The basic profit calculator formula is easy to use: Profit = Revenue – Costs. Though this profit equation is simple, making a respectable profit can be difficult; otherwise, companies would never go out of business.

Rules Of DebitDebit represents either an increase in a company’s expenses or a decline in its revenue. When there is a purchase of an asset in a company, the purchase amount should also be withdrawn from some account in the company . Hence, the account from which the amount is withdrawn gets credited, and there needs to be an account debited for the asset purchased . Invest their money in the company, they must be paid with some amount of returns, which is why this is a liability in the company’s account books. Before we explore how to analyze transactions, we first need to understand what governs the way transactions are recorded. To record capital contribution as stockholders invest in the business.

The Accounting Equation, Explained

In tutorial 2 we that the left side is known as the debit side and the right side is known as the credit side. The same rules apply here, only now we have some new additions to each side.


If you remember, we established that the main objective of the business was to generate profit for the owners. That is what has happened here, the business has gained an asset of £175 against giving up a camera that cost £100. In other words, the transaction has resulted in an income of £175 and an expense of £100. The transaction has thus created a profit of £75 (£175 – £100) for the owners assuming there are no other expenses. Revenue is the “top line” amount corresponding to the total benefits generated from all business activity. Income is the “bottom line” amount that results after deducting expenses from revenue.

Expanding the Accounting Equation

Beginning is the carryover retained earnings that were not distributed to stockholders during the previous period. The section of the basic equation which contains both the assets and liabilities remains unchanged in the expanded equation. Financial statements are written records that convey the business activities and the financial performance of a company. Revenues and expenses are often reported on the balance sheet as “net income.”

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