On the surface, total annual income is not a complex topic. If you have one stream of income, all you need to do is add up all the money that you brought in, and you’re done. You’ve calculated your total annual income.
In most cases, however, there’s a little more to it than that.
First of all, both individuals and businesses can calculate their total annual incomes, and the methods for doing so are different for each. And when it comes to businesses in particular, there’s often more than one stream of revenue to take into consideration.
Learn How to Calculate Total Annual Income
If you are an individual trying to calculate your own total annual income, you’re looking for the total amount you were paid before taxes were taken out. If you’re paid hourly, all you do is multiply your hourly rate by the total number of hours you worked throughout the year.
If you are a salaried employee, your total annual income should be your pre-tax salary. If your salary has changed throughout the year or you’ve switched companies, you’ll be able to calculate your total annual income by reviewing your paystubs or your W-2 at tax time, both of which list your total compensation for the period as well as all tax withholdings.
If you own a company and are looking to find your business’ total annual income, it’s a little less straightforward. The first thing you’ll want to do is review an income statement, also known as a profit and loss statement.
The income statement shows all the revenue and expenses that your business recognized over a period of time. An accurate income statement—one that you can trust to make decisions for your business—relies on detailed and proper bookkeeping practices throughout the year. That way, when the year is over, your revenue and expenses are categorized properly.
For most businesses, total annual income is derived by looking at four main streams of revenue:
- Revenue from Product Sales
- Revenue from Service Sales
- Investment Revenue
- Other Revenue
Revenue from Sales
Your business may sell products, services, or both. The lion’s share of your revenue may come from selling ceiling fans to commercial customers. However, if you occasionally install them too, it’s worth making sure that income is classified properly on your income statement.
When you review your income statement at the end of the year, you’ll want to look at the lines relating to total revenue from product and service sales and add those together. If your business only deals in one or the other, you’ll simply look for total revenue from sales.
You’re looking for your total revenue, so don’t take cost of goods sold or operating expenses into account here. Doing so would leave you with gross income, which (while important) serves a different purpose.
Revenue from Investments
If your company owns any investments, you may have received interest payments or capital gains throughout the year. If that’s the case, any income from investments should be documented on your income statement.
Review the revenue from investments line and add that number to your revenue from sales.
Finally, there’s a line on your income statement for “other revenue.” Things that fall into this category generally have little to do with the core functions of the business, which is why they are set apart.
If you’ve rented out a portion of your warehouse or office space, for example, that revenue would be considered “other” because it does not relate to your core business. The same goes for some interest payments you’ve received, like interest paid by your bank based on your account balances or any interest you may have charged customers for their payments.
Add this “other revenue” to your sales and investment revenues, and you’ll have calculated your total annual income for your business.
The income statement if your best resource for this exercise. Learn all about how to create and read an income statement on the ScaleFactor blog.