Net sales and gross sales are variables defined from the total sales volume, the differences are really subtle but substantial between the two.
Before going into the matter between what one and the other are, it is important to emphasize that these variables are simply measurement elements in financial accounting.
And at no point do they influence direct sales, at least not in a retro-temporary way. That is, the variables are given as a result of sales and not the other way around.
Definition of Gross Sales
The term gross sales refers to the total amount of sales credited to a company as a result of its business activity.
Gross sales by definition include bonuses, incentives, taxes and other responsibilities prior to accounting close. This means in other words that the total recorded income, without discount of any kind, is equal to the gross sales.
Definition of Net Sales
Net sales are calculated after an accounting close. These are determined from gross sales by subtracting all bonuses, discounts, incentives, and taxes.Therefore, net sales represent the real income from sales in an accounting period after crediting all the payments to which it is responsible in the sale action.
Try to be clear about the basic accounting concepts to avoid headaches with terms that may sound like something and be something else.
It is important to note that the net sale in no way constitutes a total profit margin. If not they are a simple element of measurement.
We make the previous clarification, to avoid confusion between the value of the net sale and the profit margin of a company.
This is due to the fact that the net sale does not exclude the amounts allocated to expenses for raw materials or fixed expenses, and is limited to crediting all duties and bonuses related to the sale.
Net sales and gross sales application
We already realized that net sales and gross sales correspond to the same variable, now we will delve a little into the utility of both.
The indicators serve us in all cases regardless of the variable they measure to generate statistics and strategies based on the results.
This common factor is of utmost importance for any organization. Information analysis and evidence-based action ability are often best industry practices.
Having this clear and also knowing that every measurement is an indicator of the results of the previous strategies, let’s move on to the particularities of net sales and gross sales.
Importance of gross sales
The gross sales help us do a better reading of the market. Through this indicator all kinds of sales projections are made and strategies are generated around them.
Gross sales allow us to read the results of marketing strategies or promotions directly. On the other hand, it lets us clearly know the market’s response to changes in price or product specifications.
It is through gross sales that we know exactly how much of the market we are able to capture in each cut-off period.
Importance of net sales
The net sales let us know clearly sales margins. That is, how much a sale actually generates after deducting the expenses of the sale itself. In this way, the exact amount of money that comes into the company from sales can be established. As you can see, a subtle but substantial difference between net sales and gross sales.
This avoids the common mistake of taking sales taxes, bonds, and other factors that affect the flow of money with respect to the sale as sales money.
When the values of net sales are established, it is possible to go on to generate macroeconomic data for the same company. On the other hand, profits can be established, and it is from these that the profit and loss account of a company is defined.
We hope that this topic will help you clear up doubts about the concepts of net sales and gross sales, and that it will clarify when to use one or the other indicator.