Differences between Gross and Net
Sales
1. Definition of Gross Vs. Net Sales
Gross sales are the total amount of sales
without any deductions while Net sales
are the total amount of sales after
deductions from the gross sales.
2. Amount
Gross sales are always higher than the net
sales due to the fact that net income is
derived from deductions made from the
gross sales.
3. Dependency
Net income is always dependent on Gross
sales.
4. Calculation of Gross Vs. Net Sales
To get Gross sales, you take the units sold
multiply them by the selling price for each
unit. To get Net sales you take the Gross
sales and less deductions (returns,
allowances and discounts).
5. Deduction of expenses
Operational expenses are deducted from
the Gross sales while non- operational
expenses are deducted from the net sales
6. Relevance
Net sales are much more relevant in
decision making than gross sales. The give
a better picture of the current financial
position of a company.
Comparison table for Gross Vs. Net Sales
Summary of Gross Vs. Net Sales
These two types of sales are closely
intertwined as net sales is a part of gross
sales since in order to get net sales, then
one has to calculate gross sales.
They are both calculated for a particular
financial year and they are helpful in
making comparison both internally and
externally.
These two entities help analyze how
effectively and efficiently the company’s
resources are being utilized.
They both influence the decisions made
by current shareholders, potential
shareholders and investors as well as
enable the organization to review their
goals and make the necessary plans in
order to attain their long term objectives.
Both have relevance in their own way and
they are both an integral part of the
financial analysis of the general business
income.
No comments:
Post a Comment