Gross Sales vs Net Sales

Updated on April 19, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

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.

What Are Gross Sales Vs Net Sales

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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.

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.

Gross-Sales-vs-Net-Sales-info

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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.

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

Gross Sales Vs Net Sales Comparative Table

BasisGross SalesNet Sales
DefinitionIt 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 processIt is mostly not relevant to the decision-making process.It is one of the relevant parts of the decision-making process.
Value DifferenceIts value will always be higher or equal when compared with net sales.Its value will never be higher than gross sales.
FormulaNumber of units sold * Rate per UnitGross sales – returns – discount – allowances
DependencyNet sales are dependent on it.Gross sales are not dependent on it.
Reported in the income statementNot reported in the income statement;Reported in the income statementIncome StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements.read more;

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