Net Sales

AAA

DEFINITION of 'Net Sales'

The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed. The sales number reported on a company's financial statements is a net sales number, reflecting these deductions.

INVESTOPEDIA EXPLAINS 'Net Sales'

Deductions from the gross sales are represented in the net sales figure. Therefore, net sales gives a more accurate picture of the actual sales generated by the company, or the money that it expects to receive. A company will book its revenue once the good or service is delivered or performed for the customer. However, in the case of returns, even after a good has been sold it can often be returned under a company's return policy. If the good is returned by the customer, it is not considered a sale, as the customer will receive a credit or money back, so it needs to be deducted from the gross sales. The allowances for damaged or missing goods reflect the situations in which the goods are damaged in transit or are not what the customer expected.

Many companies also offer discounts, especially on credit sales where the customer pays off the amount early. This discount is deducted from gross sales, reducing overall revenue.

VIDEO

RELATED TERMS
  1. Asset Turnover Ratio

    The amount of sales generated for every dollar's worth of assets. ...
  2. Credit

    1. A contractual agreement in which a borrower receives something ...
  3. Comps

    A buzzword that refers to a retail firm's comparable same-store ...
  4. Cost and Freight - CFR

    A trade term requiring the seller to arrange for the carriage ...
  5. Operating Income

    The amount of profit realized from a business's operations after ...
  6. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
RELATED FAQS
  1. What are the main income statement ratios?

    Learn how to calculate and interpret some of the most common and insightful financial ratios, like earnings per share, from ...
Related Articles
  1. Investing

    Net Sales

    Net Sales is an accounting term used to analyze a company's performance. It is the sales revenue that remains after deducting for product returns, damaged or missing products, and discounts. ...
  2. Fundamental Analysis

    Great Expectations: Forecasting Sales Growth

    Predicting sales growth can be something of a black art, unless you ask the right questions.
  3. Taxes

    Why You Should Care About An Internet Sales Tax

    Many retail industry observers expect an online state tax bill to pass in 2012; if it does, how could it affect you?
  4. Investing

    Doing More With Less: The Sales-Per-Employee Ratio

    If used properly, this ratio can give you insight into a company's productivity and financial health.
  5. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  6. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  7. Investing

    What's MAGI?

    Modified adjusted gross income, or MAGI, is one aspect of a person’s income that is calculated while preparing a tax return.
  8. Fundamental Analysis

    Paid-Up Capital

    Paid-Up Capital is listed in the equity section of the balance sheet. It represents the amount of money shareholders have paid into the company by purchasing shares. It’s essentially two accounts, ...
  9. Fundamental Analysis

    What's a Prospectus?

    The Security and Exchange Commission (SEC) requires that any company raising money from potential investors through the sale of securities must file a prospectus with the SEC and then provide ...
  10. Fundamental Analysis

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.

You May Also Like

Hot Definitions
  1. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  3. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  5. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  6. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
Trading Center