Sales and turnover are concepts that are similar to one another and are often used interchangeably on a company’s income statement. Sales and turnover represent the total value of the goods that are being traded by a firm which may either be from their core activities or from non-core activities. The article that follows offers a clear explanation on sales and turnover and compares both terms to see whether they, in fact, mean the same or not.
Sales
Sales refer to the total value of goods and services sold by a business. A company that sells units of items will calculate its sales by taking the total number of units sold multiplied by the selling price of the product. A service firm, on the other hand, will calculate sales by either taking into account the number of hours/number of projects/number of policies sold, etc. The sales for a service provider firm will be harder to value since the value of the service provided may vary, whereas the sales for an organization that sells products are easier to value since sales is then the total selling price of the units of goods sold. In this context, a total sales figure will not take into account any discounts given on sales or the value of returned goods. For example, if a company that sells laptops sells 10 laptops at $800, the sales value will be $8000. Even if one of those laptops is returned, the total sales will remain at 8000, but the net sales figure, which is derived after any returns or discounts are deducted from the total sales, will represent the true value of the company’s sales. So in this case, net sales would be [total sales ($8000) – returns ($800) = Net sales ($7200)].
Turnover
Turnover is the income that a firm generates through trading its goods and services. Sales turnover measures how much of the company’s finished goods are sold within a week, month, 6 months, a quarter or a year. Determining a company’s turnover will help manage production levels and ensures that finished goods are not left idle in warehouses for extended periods of time. What is being considered as turnover will depend on the type of business that the firm is in. For retail businesses, turnover will be the sales of the goods that are sold, and for a company that offers business consultancy services this will be the value of the fees charged for successful proposal wins. The turnover will include the company’s total trading income, including those that arise from activities that are not considered to be core operations of the business. For example, a company that sells computers and laptops will record their turnover as the total amount of computers sold within the year. However, they will also record income that they receive from support, maintenance, and aftercare services.
What is the difference between Sales and Turnover?
Sales and turnover refer to the very same thing and are used interchangeably on a profit and loss account. Sales and turnover refer to the income that is generated by the trade of goods and services. The sales and turnover numbers can be calculated by multiplying the unit price by the number of units sold. Figuring out the company’s sales or turnover for a period of time will help project future numbers, which can in turn help manage future production capacity.
Summary:
Sales vs Turnover
• Sales and turnover are concepts that are similar to one another and are often used interchangeably on a company’s income statement.
• Sales refer to the total value of goods and services sold by a business.
• Turnover is the income that a firm generates through trading its goods and services.