net sales vs gross sales
Net Sales Vs. Gross Sales
Before starting a company, you should understand the comparison of net sales vs. gross sales. The article below highlights the difference between the two entities.
- It is the amount that the company receives after selling their products in the market, after deducting the discounts, returns of products by the consumers (if they are not satisfied by the products), deducting the cost of damaged, missing, and stolen products.
- It provides the most accurate calculation of what the company has received or expects to receive in the turnover from sales.
- In other words, net sales considers reductions that are directly associated with the sales of the company's goods. If you see any financial statement showing the word "sales", then its "net sales".
- Gross sales is the total sale the company or the business generates in a given period.
- It does not include the discounts on products, or returns. Nor do they include the operating expenses or payment of taxes.
- Company managers use gross sales to measure changes in the units that were sold and the average selling price of the company's products from year to year.
- It is the total invoice value of the sales of your company, before deducting the customer discounts, allowances, and returns.
- To find out the gross sales of your company, find the details of the financial statement note that gives all the details of the company's sales activity for the given period.
- You subtract returns, cancellations, bad debts and any other top line deductions from the gross sales to get the net sales.
- First, add all your income to find out your total gross sales. Include the cash and credit card receipts as well.
- Then, deduct your returns. Now, deduct the allowances for all the damages and losses that you have suffered.
- Deduct the discounts, if you have given any on the sale. If you have given a special discount as an incentive to the consumers, then figure out the total amount of the discount that was given and subtract it from the previous balance (after returns and allowances).
- The final amount that you get now is your company's net sales.
- Gross sales is just a component of the total revenue. Therefore, to calculate gross sales, all you have to do is add the income from all your sources.
- After deducting returns, cancellations, and bad debts from this value, you will get your net sales.
- Returned goods
- Expired products
- Shrinkage from damaged goods
- Loss of goods
- The total money that comes into the business from various sources and transactions is all that is considered.