Gross Sales vs Net Sales

Publication Date :

16 Mar, 2023

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Table Of Contents

What Are Gross Sales Vs Net Sales?

The key difference between gross and net sales is that gross sales refer to the total value of sales made by the company during the period without adjusting for any of the costs related to such sales. In contrast, net sales refer to the total value of sales made by the company during the period, i.e., gross sales minus returns, discounts, and the allowances related to those sales.

In any business, it the net sales are closer to the number of gross sales, then the amount of profit is higher. It means that the cost associated with the business is significantly lower. A gradual increase in the gap between the two is a negative indicator of company performance.

What Are Gross Sales Vs Net Sales?

Gross Sales Vs Net Sales Explained

The company's gross sales are calculated by multiplying the number of units sold during the period by the selling price per unit. Returns made by the customer during the period, the discount is given to the customer against the sale of the product, and the allowances related to the missing, damaged, or the stolen product of the company related to those sales are not considered while calculating the gross sales.

On the other hand, net sales are dependent on gross sales figures. Therefore, it is calculated by subtracting the customer returns during the period, the discount given against the product's sale, and allowances related to the missing, damaged, or stolen product related to those sales from the gross sales value.

Gross Sales Vs Net Sales Infographics

Let's see the top differences between gross and net sales and infographics.

Example

Let us take a gross sales vs net sales example to understand the concept.

For example, during the financial year, the company sells 1000,000 units of the product, each3 at $ 10. Out of these goods of value, $ 150,000 were damaged, the company's customers returned goods worth $ 500,000, and $ 350,000 was given as a discount to the customer. In this case, the value of the gross sales will be calculated by multiplying the number of units sold during the period by the price at which the units are sold, i.e., $ 1000,000 * 10, which comes to $ 10,000,000.

On the other hand, net sales will be calculated by subtracting returns made by the customer during the period, the discount given to the customer against the sale of the product, and the allowances related to the missing, damaged, or stolen product of the company related to those sales from the value of the gross sales, i.e., $ 10,000,000 – $ 150,000 – $ 500,000 – $ 350,000 which comes to $ 9,000,000.

Thus, the above gross sales vs net sales example explains the concept clearly.

Key Differences

Below are some of the key points for net sales vs. gross sales.

Gross sales of the company are calculated without considering the returns, discounts, and the company's allowances related to those sales. On the other hand, the net sale of the company is calculated after taking into consideration all these. I.e., returns by the customer during the period, the discount given to the customer against the sale of the product, and allowances related to the missing, damaged, or stolen product related to those sales.
To know the company's financial position at present and for the various decision-making processes, in most cases, management and the other company stakeholders consider net sales to be more relevant when compared to the gross sales. The net sales tell about the net sales the company has made after considering the deductions.
The value of the gross sales will always be higher or equal when compared with the company's net sales during the same period because it is calculated after subtracting the returns, discounts, and allowances from the gross sales.
For the calculation of the gross sales, the number of units sold during the period is multiplied by the selling price per unit. On the other side, the company's net sales are calculated by subtracting the value of returns, discounts, and the allowances of the period from the value of the gross sales of that period.
Net sales depend on the gross sales as the net sales figure is derived after adjusting the value of returns, discounts, and the allowances of the period from the value of the gross sales. On the other side, gross sales are a value derived when the number of units sold during the period is multiplied by the price at which the units are sold, which is not dependent on the net sales value.
The value of the company's total net sales during the period is reported in the statement of income of that period. In contrast, on the other side, the value of gross sales is not reported anywhere in any of the company's financial statement. One has to go through the financial statement notes in detail in the section, which contains details about the net sales activities of the company, to find out the figure for the gross sales during the period.

Thus, the above gives a clear view of net sales vs. gross sales.

Gross Sales Vs Net Sales Comparative Table

Basis	Gross Sales	Net Sales
Definition	It refers to the total value of sales made by the company during the period without adjusting for any of the costs related to such sales.	It is referred to the total value of sales made by the company during the period, i.e., gross sales minus returns, discount, and the allowances related to those sales.
Decision-Making process	It is mostly not relevant to the decision-making process.	It is one of the relevant parts of the decision-making process.
Value Difference	Its value will always be higher or equal when compared with net sales.	Its value will never be higher than gross sales.
Formula	Number of units sold * Rate per Unit	Gross sales – returns – discount – allowances
Dependency	Net sales are dependent on it.	Gross sales are not dependent on it.
Reported in the income statement	Not reported in the income statement;	Reported in the income statement;