As a beginner in bookkeeping, you may have questions about the basis for calculating a company's "total revenue." Specifically, should total revenue be determined based on the amount of invoices issued in the current month, or the amount actually deposited into the bank account in the current month? This issue involves the fundamental principles of accounting recognition and needs to be understood in light of the basis of accounting.

Two common approaches: invoiced amount and actual amount received

In practice,the invoiced amounttypically corresponds toaccrual accounting(the accrual basis), where revenue is recognized when goods or services have been delivered and the right to receive payment exists, regardless of whether payment has actually been received. In contrast,the actual amount receivedcorresponds tocash accounting(the cash basis), where revenue is recognized only when cash is actually received.

Therefore, if the company uses accrual accounting (most businesses follow accounting standards and use this method), total revenue should be calculated based on the invoiced amount for the month (or revenue earned but not yet invoiced); if it uses cash accounting (common among small cash-basis businesses), total revenue is based on the amount actually received in the month.

Key differences and impacts

  • Timing differences: The invoiced amount may include accounts receivable not yet collected, while the actual amount received may include payments for invoices issued in previous months but received this month.
  • Financial statement reflection: Accrual accounting more accurately reflects current operating results, while cash accounting focuses more on cash flow status.
  • Tax and compliance: Tax laws in different regions may require a specific accounting basis; consult a professional accountant.

Tip: If you are unsure which basis the company uses, please review the company's articles of association, accounting policies, or consult your accountant. The definition of total revenue may vary in different contexts (such as loan applications, tax filings, or internal management).

Conclusion and recommendations

In short,the basis for calculating total revenue depends on the accounting method the company uses. Under accrual accounting, total revenue is based on the invoiced amount for the month; under cash accounting, it is based on the actual amount received in the month. For bookkeeping beginners, it is recommended to first clarify the company's accounting policies, then record and report revenue accordingly to avoid confusion.

For further understanding, you may refer to authoritative accounting textbooks or consult professional bookkeepers. This answer provides only a general explanation and does not constitute formal financial or legal advice.