HOW TO CALCULATE NET SALES

HOW TO CALCULATE NET SALES

What is the net sale?

A net sale is the remaining amount after deducting all allowances, returns, and gross sales discounts. It can analyze the company’s revenues, revenue growth, and operational expense during specific accounting periods. It includes all types of sales (including, cash, debit, or credit card).

The income statement of your business indicates the net sales that are the actual sales of your company during a period. Calculating and analyzing sales growth can give you an insight into your periodic financial performance. Good accounting skills will help you a lot in dealing with calculations.

It is ideal to report gross sales, following the discounts given on sales and then making the list of the net sales number. This method of showing your sales clearly indicates a change in sales deductions, large marketing discounts and other changes to the sales quality. For a single line item that is labeled as ‘sales’, refers to net sales.

Example of calculating net sales:

If a company’s :

Gross sales =                         $200,000

Sales returns =                        $10,000

Sales allowances =                 $5000

Discounts =                             $4000

The net sales are:

Gross sales – sales returns – sales allowances – discounts = Net sales

$200,000 – $10,000 – $5000 – $4000 = $181,000 of Net sales

The financial statement must have gross sales and deductions. If they are missing, then the information is considered incomplete. You can record your adjustments directly into the software application by using accounting software.

The detailed information about gross sales and the deductions of a company, including allowances and discounts, give a complete insight into its financial activities.

The single term ‘sales’ refers to the net sales of a company.

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What is the formula for net sales?

The net sales formula through which you can calculate net sales of a company is:

Gross sales – sales returns – sales allowances – discounts = Net sales

You can calculate the gross sales as:

Gross sales = units sold x the sales price per unit. 

By using this formula, you can quickly check the difference between gross sales and net sales. It will give you an estimate of your business progress and profit. If the difference between the two is more significant, it means that the company offers larger discounts (with some discount terms) and returns on its product and services. This accounting method matches revenue with expenses in a specific period of time.

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What do net sales consist of?

Net sales of a company consist of four things:

  • Gross sales
  • Sales returns
  • Sales discounts
  • Sales allowances

Gross sales:

Gross sales are the company’s total sales before the deduction of allowances, discounts, and returns during a set time period. It does not include operating and tax expenses.

It includes all sales, including cash, credit card, debit card, and trade credit sales.

Sales Returns:

It includes the refunding of payment on the return of products or services. It affects the gross sales by showing a direct decrease in sales.

Sales discounts:

A company usually offers in-time payment discounts. They are kind of rewards to the customers. Values should not exceed a limit to maintain a balance between gross and net sales. Sales discount offers can improve the company’s cash flow.

Sales allowances: 

Sales allowances are usually for damaged or defective products. They reduce prices and affects gross sales.

How to calculate net sales revenue?

The financial statement of a company helps to estimate the profit. It calculates the net sales revenue out of gross sales by deducing allowances, returns, and discounts.

Net Sales Revenue Formula:

Net Sales Revenue = Gross sales – Sales Returns – Allowances – Discounts

Gross sales are the total money earned by a company, including cash, credit cards, debit cards, and trade credit cards before deducing discounts, returns, and allowances.