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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Gross Sales

What it is:

Gross sales usually refers to a company's revenue before subtracting discounts and returns.

How it works (Example):

Assume restaurant chain XYZ made $1 million in sales for the year. The company would record this as gross sales.

Gross sales are not the same as net sales. If  the chain also offered $30,000 worth of discounts throughout the year to senior citizens, student groups and people who redeemed a certain coupon, and it also refunded $5,000 to unhappy customers during the year, restaurant chain XYZ's net sales are:

$1,000,000 - $30,000 - $5,000 = $965,000

Typically, the company’s income statement would show $1 million of gross sales, then $35,000 in coupons and discounts, and then $965,000 of net sales.

Why it Matters:

Gross sales do not account for certain price reductions, price adjustments, and refunds (always consult GAAP and IASB accounting rules and industry standards to determine what specific types of discounts are appropriate here; some are more appropriately recorded as marketing expenses).

Gross sales also generally do not account for the cost of goods sold, general and administrative expenses, or other costs (those are typically incorporated in the operating income calculation). Net sales are generally intended to be a measure of the "real top line.”

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