Formula of Gross Sales (Table of Contents)
What is Gross Sales Formula?
Gross sales refer to the overall sales of the company. This is the figure obtained before deducting discounts and sales returns from customers. In order to arrive at the gross sales figure, all the sales invoices are aggregated. The formula for gross sales is below –
Gross sales can be calculated by adding together all the sales invoices.
In certain cases, we have the net sales figure. In such a case, gross sales can be calculated by adding certain items. The steps for arriving at the gross sales if net sales are given are:
- Step 1: There are certain discounts on the goods sold. Add these discounts to the net sales figure. For instance, let us assume a discount is $20 and the net sales figure is $80. In such a case, gross sales is $80+$20 = $100.
- Step 2: Next, find out the value of sales returns, which is the value of the merchandise returned. Add that to the value of net sales.
- Step 3: Find out the value of sales allowances. Sales allowance is the amount of discount available on sales due to minor defects. Add this value to net sales.
Gross Sales = Net Sales + Discount + Sales returns + Sales allowances
Examples of Gross Sales Formula (with excel template)
The following examples will give us more clarity on the subject matter.
Gross Sales Formula – Example #1
Candies Inc. is a sweet shop selling chocolates and candies. It carries out certain sales in the month of January. The owner of the shop wants accounting to be up-to-date. He wants you to calculate the gross sales based on these invoices given:
We simply have to add the value of all the invoices to arrive at the gross sales figure:
- Gross Sales = $15 + $20 + $15 + $25 + 45 + $35 + $55
Calculation of Gross Sales will be –
- Gross Sales = $210
Hence, gross sales for the month of January are $210.
Gross Sales Formula – Example #2
Patrick Inc. is a shoe store. You are required to calculate the gross sales from the below details:
Invoice 489 – The net sales were $400. However, $100 discount was given on the said invoice.
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Invoice 490 – The net sales after the return of goods was $45. $5 of goods was returned.
Invoice 491 – A shoe had a small defect. After the allowance given, the total amount paid by the customer was $60. An allowance of $10 was given to the customer for the defect.
First, we will calculate gross sales for each invoice we’ll calculate the total gross sales.
Gross sales (Invoice 489)
- Gross sales (Invoice 489) = Net Sales + Discount
- = $400 + $100
- = $500
Gross sales (Invoice 490)
- Gross sales (Invoice 490) = Net sales + Sales Return
- = $45 + $5
- = $50
Gross sales (Invoice 491)
- Gross sales (Invoice 491) = Net sales + Allowance
- = $60 + $10
- = $70
Now the total gross sales will be –
- Total Gross Sales = $500 + $50 + $70
- = $620
Therefore, the total sales are $620.
Gross Sales Formula – Example #3
Trump Inc. is a company selling cloth. It gives you the following sales data for December using this calculate the gross sales:
Invoice 78 – The net sales are $45. It has given a 10% discount.
Invoice 79 – After a discount of 20%, the net sales were $80.
Invoice 80 – After a discount of 10%, the net sales were $90.
Gross Sales (Invoice 78)
- Gross Sales (Invoice 78) = $45 * 100/90
- = $50
Gross Sales (Invoice 79)
- Gross Sales (Invoice 79) = $80 * 100/80
- = $100
Gross Sales (Invoice 80)
- Gross Sales (Invoice 80) = $90 * 100/90
- = $100
Total Gross Sales of Trump Inc. for December will be –
- Total Gross Sales = $50 +$100 +$100
- = $250
Total Gross Sales for December are $250
Gross Sales Formula – Example #4
Clinton Inc. is a dealer selling furniture. It makes certain sales in January. It has the policy of giving a discount of 10% on those sales where the payment is made within 10 days of the date of sales. The net sales for the month of January are $ 95,000. Payment before 10 days is made on 50% of the gross sales. Calculate the amount of gross sales.
Let the total gross sales for the month of January be $100 (Assumption).
If the payment on 50% of the gross sales is made before 10 days, then the gross sales whose payment is made early are $50 (50% * $ 100)
Discount = 10% * $50
Net Sales (on which discount is given) = $50 – $5
Total net sales amount on which discount is not given would be the same as the gross sales amount, which is $50
- Total Net Sales = $50 + $45
- = $95
Thus, assuming gross sales of $100, net sales are $95. We have to calculate the gross sales given net sales of $95,000.
- Actual Gross Sales = $95,000*100/95
- = $1,00,000
Thus, the total gross sales are $1,00,000.
Gross Sales Formula – Example #5
The net sales of Brickworks Inc. were $80,000. A discount of 20% was given on gross sales. Calculate gross sales.
Let us assume that gross sales are $100. If a discount of 20% is given, then we have to calculate the net sales.
Step 1: Insert the formula in Cell B6 to get the net sales given the assumption.
Step 2: Insert the formula =B7*B3/B5 in cell B8.
So, the actual gross sale would be $100,000.
Relevance and Use
Gross sales do not state the level of profitability of a business. But, there is a high chance that an increase in gross sales increases the level of profits of the business. However, this may not always be the case.
Gross sales give the total amount of money obtained from sales. It helps in calculating ratios such as gross profit margin. An analyst can also plot the difference between gross sales and net sales. This is especially useful when plotted on a trend line. In certain cases, there may be an increasing difference between gross sales and net sales over time. It may be an indicator of quality problems – there may a high amount of goods returned due to which there may be an increasing difference.
This has been a guide to Gross Sales Formula. Here we discuss the formula to calculate Gross Sales along with examples and downloadable excel template. You can learn more about accounting from the following articles –