Sales revenue

What it means

Sales revenue is income from selling goods, own products and services in the ordinary course of business, net of VAT and discounts. In the accounts it is recorded on revenue accounts, and in the profit and loss statement it is the top line from which the result is derived.

Revenue is the main measure of a company's size. It feeds into the size criteria that classify a company as a micro, small or large accounting entity and affects, for example, the audit requirement and the scope of the financial statements.

Other income must be distinguished from revenue, for example gains on the sale of fixed assets, interest, exchange gains or compensation received. These are not revenue, even though they also increase profit. The distinction matters for correct financial ratios and for comparison with competitors.

How it works in practice

Revenue is recognised on an accrual basis, meaning in the period when goods were delivered or services provided, not when payment arrived. Retrospective discounts, bonuses and credit notes reduce revenue and must be booked in the right period, otherwise the result is distorted.

For VAT purposes turnover is what counts; it is calculated under the VAT Act and need not match accounting revenue exactly. Exceeding the statutory turnover threshold triggers mandatory VAT registration, so turnover should be tracked continuously, not just at year-end.

Banks and business partners also assess a company's creditworthiness by the trend and structure of its revenue. Steady growth, a spread across several customers and a clear breakdown by activity improve credibility when applying for a loan or bidding for a larger contract.

What to watch out for

Rising revenue does not automatically mean rising profit or enough cash. If a company sells at a loss, grants long payment terms or has high costs, it can run into cash flow problems while revenue grows. Revenue should be monitored together with margins and receivables.

Allocating revenue to the wrong period, for example on long-term contracts or subscriptions, distorts results and can lead to additional tax. For contracts that span the year-end, accruals or the percentage-of-completion method must be applied correctly.