{"id":37106,"date":"2022-12-15T03:22:00","date_gmt":"2022-12-15T03:22:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=37106"},"modified":"2022-12-15T14:24:56","modified_gmt":"2022-12-15T14:24:56","slug":"net-sales","status":"publish","type":"post","link":"https:\/\/businessyield.com\/accounting\/net-sales\/","title":{"rendered":"NET SALES: Definition, Importance & How To Calculate It","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n
For every business that will stand the test of time, a close watch must be kept on certain parts of that business. One aspect of the business that we must keep a close watch on is your revenue, which is also known as net sales. This is because it reveals the exact strength of the business in withstanding the test of time. This guide covers the importance of net sales vs gross sales, its formula, how it is calculated, what it is, and everything you need to know. <\/p>\n\n\n\n
When we talk about net sales, we are focusing on a company’s total revenue minus allowances, discounts, and sales returns. It may also be referred to as a company’s revenue. When it comes to how it is calculated, it may not be obvious to everyone. In most cases, you will find them in the income statement report. However, analysts use it to make decisions or arrive at a conclusion about a business. It is also a great way to track a company’s growth and progress. An income statement may include the gross and net sales at different intervals, in line with how they ought to appear. Gross and revenue reveal the activity around a product’s performance. It measures the rate of discounts given to customers, product demand, the number of products returned by customers, and so on. <\/p>\n\n\n\n
Well, technically yes, and this is necessary for companies that deal with products. Why is this so? When a company does not pay attention to or monitor its revenue, over time, it will affect the gross profit and gross profit margin. If a company notices the demand for a product is low, it can use discount offers to boost sales. Failure to keep a watch on progress means, they may end up with high sales demand and low gross profit. Well, let’s take a look at how some of the factors affect revenue.<\/p>\n\n\n\n
Three cost factors influence net sales either positively or negatively. These are discounts, sales returns, and allowances. To ensure a company’s performance analysis is accurate and good enough to use its results to make decisions, each of these cost factors will be accounted for across a company’s financial report.<\/p>\n\n\n\n
During production, a company may record damage to some of its products. If these products are still sellable, they will mostly reduce the price and still put them up for sale. When this happens, the sales of such products are recorded as an allowance. This is because it is the difference between the original marked price of the goods and the actual selling price of the goods. <\/p>\n\n\n\n
Most businesses that deal in products will at some point get their goods returned. Retailers are not left out of this. In most cases, the firm returns the customer’s money fully or in part. When this happens, the gross sales are usually reduced by the amount of the returns returned, and this equally affects the net sales.<\/p>\n\n\n\n
Discount offers are something every business does at one point or another. For instance, most Christmas seasons come with a lot of discount offers in the state. There are also times when companies offer discounts to customers who make large purchases or pay before the deadline. If Bretmort buys about 5 thousand cartons of noodles, he may receive a discount if he clears the payment within a specified number of days. <\/p>\n\n\n\n
Before we fully dive into gross sales vs net sales, let’s get on to what a gross sale is. Gross sales are a company’s total sales transactions over a specified period while net sales are the balance you get when you deduct allowances, discounts, and the number of goods returned from gross sales.<\/p>\n\n\n\n
When comparing net sales vs gross sales, the key difference lies in their definitions and how they are calculated or arrived at in the income statements.<\/p>\n\n\n\n
In terms of its definition, gross sales refer to a company’s overall sales record over a period. While net sales refer to the exact figures a company generates from the sale within a period after all deductions have been done. <\/p>\n\n\n\n
In terms of formula, the formula for gross sales is unit sales x price, while that of net sales is gross sales – allowance, discount, and sales return.<\/p>\n\n\n\n
Additionally, all price reduction allowances, discounts, and any refunds given to customers after the sale are reflected in net sales. On the other hand, gross sales are the total of every sale that a company records during a trading period.<\/p>\n\n\n\n
Both records are important and play vital roles in analyzing a company’s trading performance. However the net sales figures are more esteemed than the gross sales even though, you can’t get the formal without the latter. This is basically because gross sales figures give an overall report base on sales activities while the net sales reveal a company’s actual revenues. It also factors other variables that wouldn’t pass for sales.<\/p>\n\n\n\n
The table below highlights the exact elements that differentiate revenue from gross sales.<\/p>\n\n\n\n