Net Sales

Definition

The financial accounting term net sales is used to describe revenues after accounting for returns, discounts, and allowances for factors like damaged or missing goods.  The net sales line item appears on a company's income statement.

Calculation

Net Sales = Revenues (Gross Sales) - Sales Returns and Allowances

Explanation

Net sales is a restatement of sales (or revenues), and more accurately reflects the stream of money that flows into the company.  The adjustment is necessary to account for consumer returns of merchandise.

This metric is frequently used by management to measure customer satisfaction with a product.  This is done by examining and tracking the percentage of sales returns:

Sales Returns (%) = (Sales Returns and Allowances / Gross Sales) x 100

If the value of sales returns appears high relative to benchmarks, the company can conduct research to determine the source of the product dissatisfaction.

Example

The table below demonstrates how net sales would appear in a company's income statement:

Gross Sales 29,936,000
Less:  Sales Returns and Allowances (325,000)
Net Sales 29,611,000
Cost of Goods Sold 15,693,000
Gross Profit 13,918,000

Related Terms

income statement, revenues, cost of goods sold, sales returns and allowances