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
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