Net Sales - What are net sales?
The net sales figure is the sales figure after deducting the amounts for any discount given, any goods that may have been returned, and any goods that have gone astray
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The net sales figure gives an accurate account of your sales. As opposed to the gross sales figure, net sales is the total amount after the totals for discounts, returns, and damaged goods are removed.
If any goods have been damaged while in-transit to the customer meaning that the order will need to be dispatched again, this will be taken into consideration and will reduce your gross sales figure.
Also, to assist cashflow it is popular for companies to offer early settlement discounts, these will also be deducted from your gross sales figure.
Most accounting systems chart of accounts will automatically total these and then deduct from the gross and show the total as the “Total Net Sales”.
Net sales vs. Gross sales
Put simply, gross sales are your total before any tax or other discounts or amounts are removed. Net sales are the result after these additional deductions are made. Gross sales allow a company to determine their ‘top line’, the total revenue before these amounts are removed.
Net sales can be considered the actual ‘top line’ as it provides a business a clearer understanding of revenue.
Why net sales are important
Net sales are used in comparative measures. A company can compare their net and gross sales to other companies in the same field to catch problems early on before they become financial burdens.
In particular, they can indicate whether a business is providing too many discounts to customers or if they have a high percentage of returned goods.
The net sales figures are usually taken into account by investors when they’re evaluating whether to invest in a business as it is the more accurate figure in determining or predicting the revenue a company receives from sales.
Net & Gross in Debitoor
With one of our larger plans, you can access your profit & loss report, which outlines your gross and net income for your selected period of time. The profit is also broken down to before and after tax.