In theory, the more revenue your business earns, the more it will show in assets on your balance sheet. However, you don’t find revenue on a balance sheet in any direct form, such as a sales figure amount. Rather, your balance sheet shows how your revenue has played out in your company’s overall financial picture. Your balance sheet may reflect, for example, how much of your revenue you’ve saved and how much you’ve invested in inventory and equipment.
There is no dedicated line on a balance sheet for revenue, although many of the figures on a balance sheet can be traced directly and indirectly from revenue your business has earned.
A balance sheet provides a quick picture of your financial status at a specific moment in time. It is divided into assets, or everything your business owns, and liabilities, or everything your business owes. Assets may include cash in the bank, money owed to you as accounts receivable, equipment you have purchased and inventory you have sitting on your shelves. Liabilities may include principal owed on loans, credit cards and credit lines as well as accounts payable that are due to your vendors.
Your balance sheet calculates your net worth by subtracting total liabilities from total assets. By tracking these numbers over time, you can see whether your business is bringing in enough revenue to meet expenses and invest in its infrastructure and whether your business model is sound enough to keep your company financially stable.
Your sales revenue formula is more directly relevant to your income statement than to your balance sheet. An income statement, or profit and loss statement, shows how your revenue compares to your expenses during a given period such as a month or a year. The top section lists all of your sources of incoming revenue, such as wholesale and retail sales or income from interest earned or rent paid on a property you own. The bottom section shows all of the deductible business expenses your company has incurred during the same period, such as payroll, materials and supplies, rent paid and interest payments made on business loans.
The bottom line of your income statement reflects your net profit, or the amount left over after subtracting operating expenses from gross revenue. This figure may not tell you whether you have any money in the bank at the end of the day because you may still be waiting for customers to pay you or you may be paying off loans you received in previous years. Conversely, you may have money in the bank even if your business is incurring losses because you may have received outside financing or you may be behind on your current bills.
Although there is no line on your balance sheet that directly summarizes the revenue and expense lines on your income statement, these two financial statements are deeply connected. A business that consistently has more revenue than expenses will increase its assets over time, unless the owner chooses to withdraw all of the company’s earnings in the form of personal draws. Similarly, a business whose expenses consistently exceed its revenue on its income statements is likely to eventually run out of cash and will build a balance sheet riddled with liabilities and debts.
While your income statement shows how much you’ve earned or lost, your balance sheet shows how you’ve spent or invested that money and how you’ve covered your shortfalls. Income shows up in the form of money in the bank, equipment or inventory, while losses show up as money owed or insufficient capital on hand.