What are 'Gross Sales'
Gross sales is a metric for the overall sales of a company that haven't been adjusted to include discounts or returns from customers. Gross sales is calculated with a simple equation that totals together all sales invoices. This calculation does not include cost of goods sold, operating expenses, tax payments or any other charge. Gross sales can reflect consumer spending habits.
BREAKING DOWN 'Gross Sales'
Primarily significant to companies that operate in the consumer retail industry, gross sales reflects the amount of a product that a business sells relative to its major competitors.
While gross sales can be an important tool, specifically for stores that sell retail items, it is not the final word in a company's revenue. Ultimately, it is a reflection of the total amount of revenue a business brings in during a certain period of time, but it does not account for all of the expenses accrued throughout the process of generating the products that have been sold. Gross sales is not typically listed on an income statement or is often listed as total revenue. Net sales are a truer reflection of a company's top line.
Analysts often find it helpful to plot gross sales lines and net sales lines on a graph to determine how each value is trending over a period of time. If both lines increase together, this could indicate trouble with quality of products, but it may be an indication of a higher volume of discounts. These figures must be watched over a moderate period of time to make an accurate determination of the significance.
Gross Sales vs. Net Sales
While gross sales are the grand total of sale transactions within a certain time period, net sales are calculated by deducting sales allowances, sales discounts and sales returns. Net sales reflect all reductions in the price paid by customers, discounts on goods and any refunds paid out to customers after the time of sale. These three deductions have a natural debit balance where the gross sales account has a natural credit balance. Thus, the deductions are constructed to offset the sales account.
A company may decide to present gross sales, deductions and net sales on different lines within an income statement. However, this is generally more confusing, so net sales are typically the only value presented. When gross sales are presented on a separate line, the figure is often misleading, because it tends to overstate the amount of sales performed and inhibits readers from determining the total of the various sales deductions.