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

Loading the player...
RELATED TERMS
  1. Asset Turnover Ratio

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

    The ratio of net profits to revenues for a company or business ...
  3. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  4. Credit

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

    A buzzword that refers to a retail firm's comparable same-store ...
  6. Operating Income

    The amount of profit realized from a business's operations after ...
RELATED FAQS
  1. What are the main income statement ratios?

    The following financial ratios are derived from common income statements and used to compare different companies within the ... Read Full Answer >>
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. Fundamental Analysis

    What's Fair Value?

    Fair value has three different meanings depending on the context.
  8. Investing

    Understanding Accumulated Depreciation

    Depreciation is a rough approximation, in dollar terms, of the wear and tear on an asset. So the accumulated depreciation is the aggregate of the wear and tear on the asset from all prior time ...
  9. Investing Basics

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  10. 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.

You May Also Like

Hot Definitions
  1. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  3. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  4. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  5. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
  6. Currency Carry Trade

    A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase ...
Trading Center