How to Find Total Operating Revenue of My Business

A company must grow revenue and control costs to drive profit growth.

There are two kinds of revenues: operating and non-operating. Operating revenues are from a company's primary activities, such as selling chairs for a furniture manufacturing company and providing advisory services for a management consulting company. Returns and discounts, known as contra accounts, are subtracted from gross operating revenues to result in net operating revenues. Non-operating revenues are from secondary activities, such as interest on bank deposits. Revenues must be recognized on the income statement in the period they are earned.

Instructions

1. Get the product revenues for the period. These are usually tracked daily on computer systems that link your cash register to your warehouse. If you do not have a computerized system, find the revenues from cash register receipts and invoices. A period is usually a month, a quarter or a year. For example, if you own a hardware store, your product revenues are the dollar value of the tools, parts and other products sold during the period.

2. Find the service revenues for the period. For example, if you own a tax consultancy, client payments for preparing their tax returns would represent your service revenues. If you run a home heating business, your product revenues would be the home heating oil and your service revenues would include annual furnace maintenance contracts and service calls.

3. Add the product and service revenues to get the gross operating revenues. For example, if the product revenues are $1 million and the service revenues are $100,000, then the gross operating revenues are $1.1 million (1,000,000 + 100,000).

4. Tally the returns and discounts during the period. In the hardware store example, if customers returned some of the tools for whatever reason, then those revenues would be entered in the returns contra account. Similarly, enter discounts in the discounts contra account. Companies often offer a 1 to 2 percent discount to customers who settle their credit accounts within 10 days instead of the normal 30 days. In the example, if the returns and discounts are $150,000 and $50,000, respectively, then the total returns and discounts for the period equal $200,000 (150,000 + 50,000).

5. Calculate the net operating revenue by subtracting the returns and discounts from the gross operating revenues. To conclude the example, the net operating revenue equals $900,000 (1,100,000 - 200,000).

References

• AccountingCoach: Income Statement: Revenues and Gains
• AccountingCoach: What Is a Contra Revenue Account?