In order to create an Income statement you will need to be able to calculate the revenue figure which will go at the top.
As discussed in our previous post, revenue is simply the total amount of sales the business has over a certain period.
In practice, there are two different metrics that can be used when looking at revenue. The first way is to look at how much money those sales brought in. The second way is to look at how many units of each product were sold in that period. If we are looking just at how many units were sold then there isn’t really any calculation to be done, we simply just look at how many units were sold. However, calculating the money that sales brought in requires some calculation. We have gone into this calculation in more detail below:
The Formula Used to Calculate Revenue
To calculate total revenue, we will need two different figures. Firstly we will need to know the price per unit of the each item being sold.
Once we know the price of each item being sold we then need to know how many of these items were sold in the period.
From here the rest is quite simple:
We simply multiply the price per unit by be amount sold and this will give us the total amount of revenue generated from selling these items.
Therefore, the formula is as follows:
Price per unit X units sold
Example
To put this into practice, we will look at a simple example.
Let’s say that ABC Limited sell apples. In a 12 month period they sold 500 apples and each one sold for £1.
If we plug these numbers into the formula above we get:
£1 (price per unit) X 500 (volume sold) = £500.
Therefore we calculated the revenue for the period to be £500.
One thing to remember is that if there are multiple items being sold at different prices we must carry out the formula separately for each one and add the results together to get the total revenue.