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Gross sales are the total invoice value of sales. This figure doesn't include any returns or discounts that a company may offer to its customers. The sales numbers include cash sales, as well as cases where an item has been sold on credit.
Retailers may be particularly interested in the dollar amount of the products they are selling. They want to keep track of how many units of a particular item are being sold, and at what price point. Keeping inventory moving from the store into the customer's hands is preferable to having large amounts of stock sitting on the floor or in a warehouse.
When a company sends out an invoice to a customer for payment, the terms will appear somewhere on the document. Customer incentives, such as a cash discount for paying within a set number of days from the invoice date, will be listed. If a customer chooses to pay the invoice before its due date and get the cash discount pricing, the amount of the discount isn't recorded in the sales figures until payment has been received. The full amount invoiced is reflected in the company's gross sales figures.
Sales tax collected by a merchant is not included in gross sales figures. The company is not selling the tax, but is required to collect it on behalf of the government. This money is supposed to be tracked separately from company sales and kept in a separate account until it is remitted to the government.
A company's gross sales figures can indicate how well it is performing, but this number doesn't represent the entire story. A company's sales before accounting for any deductions may seem impressive. Once returns, discounts and transportation costs are factored in, the net amount is significantly lower.
A business may report gross sales of $25,000 US Dollars (USD) in a particular month. If customers return $10,000 USD worth of goods sold, then the net sales figure drops to $15,000 USD for that time period. The net sales figure is what would normally be listed on an income statement for the company, not the number for gross sales.
Net sales on an income statement may also be called total revenue. To calculate the company's profit or loss for a set period, the company's production, marketing and administrative costs are deducted from the net sales figure. Taxes must also be deducted before the company's net income can be calculated.
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