Sales turnover

Sales turnover is the total amount of revenue generated by a business during the calculation period. The concept is useful for tracking sales levels on a trend line through multiple measurement periods, in order to spot meaningful changes in activity levels. The calculation period is usually one year. The revenue included in this calculation is from both cash sales and credit sales. The measurement can also be broken down by units sold, geographic region, subsidiary, and so forth.

Sales turnover is restricted to revenue generated from operations. Thus, it does not include gains from financial or other activities, such as interest income, gains on the sale of fixed assets, or the receipt of payments related to insurance claims.

The amount of sales turnover recognized by a business can vary, depending on whether it uses the accrual basis of accounting or the cash basis. Revenue is recorded under the accrual basis when units are shipped or services provided, whereas revenue is recorded under the cash basis when cash is received from customers (which usually delays recognition, except when there is a prepayment).

A company may be tempted to report projected sales turnover based on an extension of historical sales. This is not wise, since revenue may change for a variety of unanticipated reasons, such as competitive pressure and changes in economic conditions.

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