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. Comps

    A buzzword that refers to a retail firm's comparable same-store ...
  3. Credit

    1. A contractual agreement in which a borrower receives something ...
  4. Operating Income

    The amount of profit realized from a business's operations after ...
  5. Cost and Freight - CFR

    A trade term requiring the seller to arrange for the carriage ...
  6. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
Related Articles
  1. Personal Finance

    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 a company's income statement.
  2. 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. ...
  3. Fundamental Analysis

    Great Expectations: Forecasting Sales Growth

    Predicting sales growth can be something of a black art, unless you ask the right questions.
  4. 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?
  5. 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.
  6. Options & Futures

    Advanced Financial Statement Analysis

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

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  8. 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 ...
  9. 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.
  10. Fundamental Analysis

    What's Net Debt?

    Net debt is one of the many metrics used to measure a company’s ability to pay its debts. There are other metrics such as net liquidity ratio, cash conversion cycle and the debt to equity ratio, ...

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center