What are Gross Sales?
Gross sales usually refers to a company'sbefore subtracting discounts and returns.
Gross Sales 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 . If the chain also offered $30,000 worth of discounts throughout the year to senior citizens, student groups, and people who redeemed a certain , and it also refunded $5,000 to unhappy customers during the year, restaurant chain XYZ's net sales would be calculated as:
$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 Gross Sales Matter
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.) are generally intended to be a measure of the "real top line.”