How to Report Product Sales Revenue & Service Revenue on an Income Statement

Revenue appears on the top line of an income statement.

A company generates revenue by selling products, such as hats, or services, such as legal representation. You must report revenue on the top line of your income statement, which is the amount from which all other items are subtracted, such as expenses. Based on accrual accounting, you must report revenue in the period in which it is earned, which can be different than when you receive payment. For example, you would report a sale made in the third quarter on your third-quarter income statement, even if you receive payment for it in the fourth quarter.

Instructions

1. Determine the amounts of product sales revenue and service revenue your company earned in an accounting period.

2. Add the amount of product sales revenue to the amount of service revenue. For example, add $100,000 in product sales revenue to $200,000 in service revenue. This equals $300,000 in total revenue.

3. Determine the amount of sales discounts, returns and allowances in the accounting period.

4. Subtract the amount of sales discounts, returns and allowances from total revenue. For example, subtract $15,000 in sales discounts, returns and allowances from $300,000. This equals $285,000 in net sales.

5. Write "Sales" and the amount of total revenue on the first line of the income statement with the description in the first column and the amount in the second. For example, write "Sales" and "$300,000."

6. Write "Less: Sales discounts, returns and allowances" and the amount of sales discounts, returns and allowances on the second line of the income statement with the description and amount in the same columns as the previous line. For example, write "Less: Sales discounts, returns and allowances" and "$15,000."

7. Write "Net sales" and the amount of net sales on the third line using the same description and amount columns as the previous lines. For example, write "Net sales" and "$285,000." This reports your product sales revenue and service revenue on the income statement.

References

• Accounting Coach; Income Statement; Harold Averkamp; 2011
• Principles of Accounting; Chapter Five: Special Issues for Merchants; Larry Walther; 2010