What Is the Difference Between Gross Sales and Net Sales?
Gross sales are total sales recorded in an accounting period. Net sales are gross sales minus any reductions for returns, invoicing terms discounts and allowances made for product defects. The deductions taken from gross sales are considered contra assets.
Net sales are typically reported on a company’s financial statements to avoid confusion and to reduce the number of accounts reported. Net sales give investors a better picture of the overall financial performance of a company.
The difference between gross sales and net sales are of interest to a financial analyst. If product returns or allowances are trending upward, then there may be a problem with a product’s quality.