Net Sales
Candlefocus EditorNet sales is most commonly reported externally in the direct costs portion of the income statement of a company's financial records. Net sales are reported against the expenses of revenue, such as the cost of goods sold (COGS), advertising, and selling and promotional expenses. This revenue-side of the income statement is commonly referred to as the "top line."
Net sales and gross sales are not the same, as gross sales are typically reported before any returns, allowances, or discounts are calculated. For example, if a company makes a gross sale of $10,000 but is given a return allowance of $1,000, their net sales amount would be $9,000.
Changes in net sales can have a direct effect on a company’s gross profit and gross profit margin. For example, if a company experienced a decrease in gross sales due to a return allowance, the company might see a decrease in its gross profit. Conversely, if a company experiences an increase in net sales year-over-year, the company might experience an increase in its gross profit.
Overall, net sales provide companies with important information regarding their financial performance and help to inform future sales growth and profit projections. As such, net sales provide a vital metric in assessing a company’s current and future financial health.