Net Sales

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DEFINITION

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

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.


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