Your annual turnover calculation is an essential part of your statutory accounts because it tells you what your total sales have been over the past 12 months.
The annual turnover of your company is an important measurement of its performance.
What Does Annual Turnover Mean?
Annual turnover is the total value of everything you sell over the 12 months of your company’s financial year.
Other ways of referring to turnover are:
- Gross revenue
Turnover is not the same thing as profit. Profit is a measure of your company’s earnings after you’ve deducted expenses.
Annual turnover, on the other hand, is your total business income. It is a net sales figure.
Annual Turnover In Accounting
Turnover can also refer to business activities that don’t always generate sales, measuring movements to do with:
- Accounts receivable
But these aren’t the measurements that your annual accounting focuses on when it looks at turnover.
Annual turnover in accounting is a total sales figure.
How to Work Out the Average Turnover of a Company
Turnover can cover various periods. It may be quarterly, half-yearly or annual, for example.
To get the figure for your annual turnover, add up the total sales your business has made over the year.
There are two different accounting methods that HMRC recognises for calculating this figure:
- Traditional accounting
- Simplified cash-based accounting
In traditional accounting, turnover is all the sales your company has earned in the financial year. This figure includes sales that you’ve not yet received payment for.
In simplified cash-based accounting, you only include the sales that have been paid for in your turnover calculation.
Once you’ve got your annual total, the average turnover per month will be this total divided by 12.
How to Calculate Annual Turnover on a Balance Sheet
Add together your total sales to get your annual turnover figure.
On your balance sheet, you can then work out your gross and net profit figures:
- For gross profit, deduct the cost of your sales from your turnover
- For net profit, deduct all your other expenses from your gross profit
Understanding your annual turnover is vital for knowing what you’ll need to do to reach your profit targets.
In your statutory accounts, annual turnover helps to provide a clear picture of your company’s financial health.
You can use turnover as a useful measurement. For example, if your gross profit is low when you measure it against turnover, you might want to look at ways of reducing your sales costs.
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