How to Get Net Sales From a Balance Sheet

Each sales transaction is recorded on both income statement and balance sheet.

Under the double-entry system of accounting, all business transactions have at least two entries: debit, which goes on the left side of the account, and credit, which goes on the right. An account is a record of transactions. A sale is recorded as a credit entry for revenue, which is on the income statement, and a debit entry for cash or accounts receivable, which are on the balance sheet. Estimate the net sales by using the balance sheet accounts.

Things You'll Need

• Financial statements

Instructions

1. Add the cash and accounts receivable balances for the current period. Assume that you're computing the net sales during the month. For example, if the cash balance is $100 and accounts receivable is $50, the total for the current month is $150.

2. Add the cash and accounts receivable balance for the prior month. For example, if the cash balance was $70 and accounts receivable was $45, the total of the prior month was $115.

3. Subtract the prior month's total from the current month's total to estimate the net sales for the month. You are assuming that sales transactions were solely responsible for the change in the cash balance in the month. In other words, there were no inventory purchases or loans that affected the cash balance. To wrap up the example, net sales is equal to $150 minus $115, or $35 for the month.

Tips & Warnings

• Credit card or debit card sales are recorded as cash sales. Invoiced sales are recorded under accounts receivable.

• The accounts receivable amounts are typically net of allowance for doubtful accounts. This allowance reflects management's estimate, based on historical or industrial averages, of the portion of the accounts receivable balance unlikely to be collected.

• You can also estimate net sales for the most recent 12-month period by comparing the current month's totals to the same month in the prior year. For longer periods, however, it becomes difficult to assume that sales transactions were the sole contributors to changes in cash balances.

• The terms "sales" and "income" are often used instead of "revenue."

References

• AccountingCoach: Introduction to Balance Sheet