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What's the difference between "Net Sales", "Total Revenue", and "Gross Sales"?

From what I have found,

  • Gross Sales = the sum of all receipts
  • Net Sales = Gross Sales - Discounts - Sales Returns - Sales Allowances

Source: https://www.investopedia.com/terms/g/grosssales.asp

I get the impression Gross Sales isn't what customers actually paid, but just the way we recorded it on the receipt. Whereas Net Sales is the actual amount of money our sales generated in total after those adjustments.

But I'm still confused how that relates to Total Revenue, which is the quantity I thought was reported on income statements.

If someone could clarify these definitions, that would be great.

2 Answers 2

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Gross Sales is a part of Total Revenue. It's the income from sales of goods and services, but companies can earn revenue in other ways. It can earn interest on investments and loans, or can make a profit by spinning off sub-divisions, etc.

Gross sales typically does NOT include taxes (as they are not "income" to the company, but just collected on behalf of a taxing agency) It also does not include discounts, returns, etc. Those are accounted for as expenses and deducted from gross sales to get Net Sales.

So if you look at a "receipt" for a $100 product with a 20% discount and 5% tax for a total of $84, Gross Sales would be $100, and Net Sales would be $80. Total Revenue would also be $100 since the items I mentioned above are more corporate-level and don't show up on retail receipts.

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Total Revenue is the amount of total sales of goods and services which the company has actually received funds for.

Gross sales is the total revenue a generated including any sales tax, and doesn't factor in expenses incurred from bringing products to the moment of sale including accounts for which payments have not been settled officially yet. More simply: the grand total of sale transactions.

The difference between Total Revenue and Gross Sales is most often the amount of money actually received as revenue and the amount of money expected to be received (not projections, but unsettled transactions).

Net sales
= Gross Sales subtracting any sales allowances, sales tax + sales discounts + sales returns
= Total Revenue - (sales allowances + sales discounts + sales returns + unsettled account sales)

Checkout this comparison article for more of a breakdown on differences.

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  • What is an "unsettled account sale"? Can you give me an example. Nov 3, 2021 at 19:06
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    I think you're distinguishing cash vs accrual method of accounting, which is not the difference between gross sales and total revenue.
    – D Stanley
    Nov 4, 2021 at 13:02
  • @StanShunpike an unsettled account sale can be a good/service delivered or provided to a customer, for which hasn't been paid yet. An example could be company A agrees to outsource part of its manufacturing process to Company B, and company A provides some materials to Company B. Then Company B will return the manufactured product to Company A. The value of B's product is greater than the raw material A provided, so B is owed some balance by A. The transaction isn't completed until A gets their product back from B, so until then the transaction is unsettled.
    – jros
    Nov 4, 2021 at 13:23

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