Gross Revenue

Updated on April 19, 2024
Article byPriya Choubey
Edited byCollins Enosh
Reviewed byDheeraj Vaidya, CFA, FRM

Gross Revenue Meaning

Gross revenue refers to the total value of sales generated by a business entity in a particular accounting period. It is an untreated value; no deductions are made for the cost of goods sold or other expenses. It is a top-line item on the income statement.

Gross Revenue Meaning

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Gross revenue is also referred to as gross sales. Gross sales are not profits earned by an enterprise, just the value of goods or services sold by the firm. We acquire the net revenue value by deducting sales returns, allowances, and discounts from the gross amount.

Key Takeaways

  • Gross revenue is a company’s overall revenue during a given accounting period from the sale of goods or services. It is the purest form of sales revenue before any deduction for sales discount, sales return, or cost of goods sold.
  • Gross sales generated by a corporation are considered key information by stakeholders and investors. A rise in gross sales signifies a firm’s ability to maximize its market share.
  • The gross sales are evaluated using the following formula:
    Gross Revenue = Total Sales Volume × Sales Price Per Unit

Gross Revenue Explained

Gross revenue, also known as gross sales, is the total value of goods or services sold in a particular period. It is mentioned at the top of an income statement—since it is the purest form of sales revenue generated by a firm from its day-to-day operations. Consequently, it undergoes various deductions such as sales discounts, returns, and allowances to attain the company’s net revenue

Gross sales are computed as the product of total sales volume and the per-unit sales price pertaining to a particular product or service. It is mathematically denoted by the following equation:

 Gross Revenue = Total Sales Volume × Sales Price Per Unit

The gross sales amount is widely used to determine other income statement items—gross profit, operating income, and net profit. Gross sales generated by a corporation are considered key information—by stakeholders and investors alike. It signifies a company’s performance. A rise in gross sales shows the firm’s efficiency and ability to maximize its market share.

However, this value alone is inadequate to determine a company’s profitability. High sales revenue does not always mean high profit margins. Moreover, it is the mere value of the total sales made by the business and fails to incorporate other incomes, such as income from interest, rent, commission, dividends, etc.

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Examples

Example #1

ABC Pvt. Ltd. sold 30000 kgs of detergent powder in a financial year. If the sales price of detergent powder is $0.7 per kg, determine the company’s gross sales.

Solution:
Given:
Total Sales Volume = 30000 kgs

Sales Price Per Kg = $0.7

Gross Revenue = Total Sales Volume × Sales Price Per Unit

Gross Revenue = 30000 × 0.7 = $21000

Thus, ABC Pvt. Ltd generated gross sales of $21000 in the given accounting year.

Example #2

XYZ Ltd. made the following sales in 2021:

ItemSales Volume (in Units)Sales Price Per Unit (in $)
Goods A150003.2
Goods B270002.5
Goods C90005.1

Now based on the given data, determine the gross sales generated by the company.

Solution:

ItemSales Volume (in Units)Sales Price Per Unit (in $)Sales Revenue (in $)
Goods A150003.248000
Goods B270002.567500
Goods C90005.145900
161400

Thus, the gross sales of XYZ Ltd. in 2021 are $161400.

Example #3

The gross sales of CVS Health Corporation for the three consecutive years 2019, 2020, and 2021 can is highlighted in the following Consolidated Income Statement:

Gross Revenue Example

Thus, CVS Health Corp. generated a revenue of $292111 in 2021, $268706 in 2020, and $256776 in 2019.

Gross Revenue vs. Net Revenue

The gross and net revenue are two different aspects of an income statement. Both facilitate the evaluation of other financial information like profits.

Now let us understand the differences between the two:

BasisGross RevenueNet Revenue
MeaningGross sale is the total value of sales an organization generates from selling goods or services.The net revenue is a residual amount that is left after deducting sales discounts, allowance, and returns from gross sales.
Inclusive ofGross sales include the cost of goods sold, returns, discounts, allowance, overheads, and profit.Net sales only include the cost of goods sold and the gross profit
Exclusive ofIt is the purest form of sales proceeds that doesn’t account for any deductions.It is the sales revenue that excludes discounts, returns, and allowances
FormulaGross Sales = Total Sales Volume × Sales Price Per UnitNet Revenue = Gross Revenue – Sales Discount – Sales Return – Allowance
Mathematical ImplicationIt helps determine the net revenue or sales of the firmIt is used for evaluating the operating income of the business
RelevanceGross sale is necessary for understanding a company’s efficiency in improving its sales and maximizing market share. Also, investors and shareholders look at a company’s gross sales before investing.Net revenue alone is not adequate for computing a business’s profits
Shortcomings              It overlooks other sources of income—interest on investment, rent, or commission. Also, it only signifies sales values, not actual profits made by a business.Net revenue alone is not adequate for computing a business’s profits
Position on Income StatementIt is found on top of Income StatementsIn the income statement, It appears right after gross sales.

Frequently Asked Questions (FAQs)

What is gross revenue?

Gross sales are the total sales proceeds a firm earns from its ordinary business operations in a particular accounting period. This value is inclusive of the cost of goods sold, profits, and other overheads.

What is the difference between revenue and profit?

The term revenue denotes the overall amount generated by an organization from the sales of goods or services. Profit, on the other hand, is the amount left with the seller after deducting sales discounts, returns, allowances, cost of goods sold, and other expenses from the revenue.

How to calculate gross revenue?

Gross sale is a top-line item on the Income Statement. The following basic formula is used for its computation:
Gross Revenue = Total Sales Volume × Sales Price Per Unit

Do gross sales include tax?

Gross sales are the purest form of total sales proceeds before any deductions. It includes the cost of goods sold, sales discount, sales returns, and expenses such as taxes, rent, salary, interest, etc.

This has been a guide to Gross Revenue and its Meaning. We explain vs net revenue, and examples showing how to calculate using formula. You may learn more about it from the following articles –

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