Gross Sales vs Net Sales: Key Difference

June 13, 2022

Gross Sales vs Net Sales: Key Difference

If you’re just starting to learn more about Accounting terminology, you might have noticed that there are Gross and Net versions of everything. Gross profit and Net profit. Gross Sales and Net Sales. 

It’s one of the reasons many people find Accounting so confusing! However, the good news is that this Accounting topic isn’t as complicated as some of the others. So let’s see what Gross Sales vs Net Sales means, and how you can calculate both. 

What Is Gross Sales?

Gross Sales are the same thing as Revenue or Turnover. It’s simply a figure that reflects the total value of orders that you have received from your customers during a predefined period. 

You can measure Gross Sales over any period you choose to, but usually, it’s calculated monthly, quarterly and annually. 

Calculating Gross Sales is a quick way to tell if your business is growing. If your Gross Sales for a particular period is more than the same period last year and in previous years, then your company is growing. 

The formula for Gross Sales is very simple: 

Gross Sales = Total Sales for the period

So, for example, if you made five sales in a particular reporting period, and they were $5,000, $7,000, $10,000, $3,000 and $1,000 respectively, your Gross Sales would be $26,000. 

What Is Net Sales?

In Accounting, Net always means that it’s Gross less some kind of deduction. 

In this case, Gross Sales vs Net Sales means that you have taken your Gross Sales figure and deducted any allowances you’ve given customers, discounts that were offered on sales, and any returns that had to be credited. 

Allowances are usually concessions you make after a sale is completed, if the client is not happy with the product or service they have received, so it’s harder to predict those. Discounts are usually offered in order to make the sale, so they are usually known upfront, and returns can only be calculated when they happen. 

The Difference Between Gross and Net Sales

The difference between Gross and Net Sales is that Gross Sales figures don’t take any of the deductions mentioned above into account. 

In some cases, your Gross Sales and Net Sales figures could be the same – if you haven’t had to make any allowances, offer any discounts or had any returns for the reporting period. However, your Net Sales figure will always be equal to or less than your Gross Sales figure. 

Are Gross Sales Calculated Before Taxes?

No. Gross Sales is the total value of all your orders or invoices for a predefined period, so taxes are included. Taxes are one of the things that are deducted from Gross Sales to calculate Net Sales. 

How Do You Calculate Gross Sales from Net Sales?

If you know what your Net Sales are, and you want to calculate your Gross Sales, you will need to add back everything that was deducted to calculate Net Sales. That means adding back all your material and labor costs, overheads, taxes and other deductions. It’s a lot simpler to simply look at your revenue for the period you’re interested in. 

Are Sales and Gross Sales the Same?

Technically, yes and no. Gross Sales are sales, but so are Net Sales. Sales could also refer to an actual sale, where you offer a discount on your products or services. 

This is why there are terms like Net Sales and Gross Sales in accounting – so that you can differentiate between all the many similar-sounding words and phrases. This helps to ensure that everyone knows exactly which figure you’re talking about. 

What Is the Difference Between Gross Sales and Total Sales?

There is no difference. Gross Sales, total sales and revenue all mean the same thing: the total value of orders or invoices for a specific period. It’s calculated before you calculate profit or Net Sales, and sometimes, depending on your clients’ payment cycles, it might include amounts that still have to be collected. 

How to Track Gross and Net Sales

If you’re using Accounting software like QuickBooks to capture customer orders, produce invoices and handle credit notes, you’re already tracking Gross and Net Sales in the Profit & Loss report:

Profit & Loss report with Sales generated by LiveFlow

 

Your Gross Sales figures will simply be your Revenue for the period you are tracking, while your Net Sales will be the figure with all of the deductions we’ve mentioned above already made. Since most Accounting software automatically tracks discounts and credits, you should have these figures right at your fingertips! 

Why Do You Need to Know Gross Sales vs Net Sales?

You might be wondering why you have to track all of these different Gross and Net figures. Why can’t you just keep it simple?

However, the difference between Gross and Net figures in Accounting can tell you a lot about your business. 

For instance, if there’s a big difference between your Gross Sales and Net Sales, then that might be a sign that there’s something wrong with your product or service. Investigating whether there have been many allowances made or credits issued could tell you that you need to change your production strategies. 

If you’re discounting a large proportion of your sales heavily in order to get business, then you might need to adjust your pricing strategy, or find new methods for your sales team to use to close sales at higher margins. 

Every calculation done in accounting can tell you something about the health and progress of your business. So while it may seem like a lot of work to track them all, they do all have value. 

Where Can You Find Gross Sales Figures Easily?

If you use Accounting software, you will find Gross Sales and Net Sales figures in your Profit and Loss reports. If you are also using LiveFlow to export data to spreadsheets on Google Sheets, you can synch this data, so you only ever have to look at one simple report to get all the Gross and Net Sales data you need. 

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